INTERNET STREAMING OF RADIO BROADCASTS:

BALANCING THE INTERESTS OF SOUND RECORDING COPYRIGHT OWNERS WITH THOSE

OF BROADCASTERS

HEARING
BEFORE THE

SUBCOMMITTEE ON COURTS, THE INTERNET,

AND INTELLECTUAL PROPERTY
OF THE

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION

JULY 15, 2004

Serial No. 99
Printed for the use of the Committee on the Judiciary

(
Available via the World Wide Web: http://www.house.gov/judiciary
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON

94917 PDF

2004

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 5121800; DC area (202) 5121800
Fax: (202) 5122250 Mail: Stop SSOP, Washington, DC 204020001

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00001

Fmt 5011

Sfmt 5011

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

COMMITTEE ON THE JUDICIARY

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman
HENRY J. HYDE, Illinois
JOHN CONYERS, JR., Michigan
HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia
LAMAR SMITH, Texas
JERROLD NADLER, New York
ELTON GALLEGLY, California
ROBERT C. SCOTT, Virginia
BOB GOODLATTE, Virginia
MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio
ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee
SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah
MAXINE WATERS, California
SPENCER BACHUS, Alabama
MARTIN T. MEEHAN, Massachusetts
JOHN N. HOSTETTLER, Indiana
WILLIAM D. DELAHUNT, Massachusetts
MARK GREEN, Wisconsin
ROBERT WEXLER, Florida
RIC KELLER, Florida
TAMMY BALDWIN, Wisconsin
MELISSA A. HART, Pennsylvania
ANTHONY D. WEINER, New York
JEFF FLAKE, Arizona
ADAM B. SCHIFF, California
MIKE PENCE, Indiana
NCHEZ, California
LINDA T. SA
J. RANDY FORBES, Virginia
STEVE KING, Iowa
JOHN R. CARTER, Texas
TOM FEENEY, Florida
MARSHA BLACKBURN, Tennessee
PHILIP G. KIKO, Chief of Staff-General Counsel
PERRY H. APELBAUM, Minority Chief Counsel

SUBCOMMITTEE

ON

COURTS,

THE

INTERNET,

AND

INTELLECTUAL PROPERTY

LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois
HOWARD L. BERMAN, California
ELTON GALLEGLY, California
JOHN CONYERS, JR., Michigan
RICK BOUCHER, Virginia
BOB GOODLATTE, Virginia
ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee
MAXINE WATERS, California
SPENCER BACHUS, Alabama
MARTIN T. MEEHAN, Massachusetts
MARK GREEN, Wisconsin
WILLIAM D. DELAHUNT, Massachusetts
RIC KELLER, Florida
ROBERT WEXLER, Florida
MELISSA A. HART, Pennsylvania
TAMMY BALDWIN, Wisconsin
MIKE PENCE, Indiana
ANTHONY D. WEINER, New York
J. RANDY FORBES, Virginia
JOHN R. CARTER, Texas
BLAINE MERRITT, Chief Counsel
DAVID WHITNEY, Counsel
JOE KEELEY, Counsel
ALEC FRENCH, Minority Counsel

(II)

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00002

Fmt 5904

Sfmt 0486

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

CONTENTS
JULY 15, 2004
OPENING STATEMENT
Page

The Honorable Lamar Smith, a Representative in Congress From the State

of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property ....................................................................................................
The Honorable Howard L. Berman, a Representative in Congress From the
State of California, and Ranking Member, Subcommittee on Courts, the
Internet, and Intellectual Property ....................................................................
The Honorable Rick Boucher, a Representative in Congress From the State
of Virginia .............................................................................................................
The Honorable Zoe Lofgren, a Representative in Congress From the State
of California ..........................................................................................................

1
2
4
5

WITNESSES
Mr. David Carson, General Counsel, Copyright Office of the United States,
The Library of Congress
Oral Testimony .....................................................................................................
Prepared Statement .............................................................................................
Mr. Dan Halyburton, Senior Vice President/General Manager, Group Operations, Susquehanna Radio Corporation, on behalf of the National Association of Broadcasters
Oral Testimony .....................................................................................................
Prepared Statement .............................................................................................
Mr. Steven Marks, General Counsel, Recording Industry Association of America, Inc.
Oral Testimony .....................................................................................................
Prepared Statement .............................................................................................
Mr. Jonathan Potter, Executive Director, Digital Media Association (DiMA)
Oral Testimony .....................................................................................................
Prepared Statement .............................................................................................

6
8

22
23
37
39
43
45

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Letter to Rep. Rick Boucher from David O. Carson, General Counsel, Copyright Office of the United States, The Library of Congress ..............................

61

APPENDIX
MATERIAL SUBMITTED

FOR THE

HEARING RECORD

Prepared Statement from the Honorable Howard L. Berman, a Representative

in Congress From the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property .........................
Prepared Statement from the Honorable John Conyers, Jr., a Representative
in Congress From the State of Michigan ...........................................................
Prepared Statement of the American Federation of Television and Radio
Artists (AFTRA), the American Federation of Musicians of the United
States and Canada (AFM), the Recording Artists Coalition (RAC), and
the Future of Music Coalition (FMC) .................................................................

65
66

66

(III)

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00003

Fmt 5904

Sfmt 5904

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00004

Fmt 5904

Sfmt 5904

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

INTERNET STREAMING OF RADIO BROADCASTS: BALANCING THE INTERESTS OF

SOUND RECORDING COPYRIGHT OWNERS
WITH THOSE OF BROADCASTERS
THURSDAY, JULY 15, 2004

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY,
COMMITTEE ON THE JUDICIARY,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in Room
2141, Rayburn House Office Building, Hon. Lamar Smith (Chair of
the Subcommittee) presiding.
Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order.
I will recognize myself for an opening statement and then other
Members as well.
The purpose of todays hearing is to begin an examination of
issues that relate to the streaming of copyrighted sound recordings
over the Internet. A related issue is the potential impact of new
technologies and devices such as HD or digital radio upon the balance of interest embodied in our copyright laws.
After reviewing the testimony of the witnesses, it is apparent
that the concerns of the broadcasters, while substantial, are but
one thread in a complex and interrelated quilt of issues. As is common with copyright issues, these concerns involve, one, the incentives to create and protect intellectual property; two, the economic
interest of those who benefit from broadcasting and distributing
these created works; and three, the publics interest in maximizing
access to these works at a reasonable price.
By enacting the Digital Performance Right in Sound Recordings
Act in 1995, Congress took an important and historic step. It did
so by establishing for the first time in the United States an exclusive, though limited right, for sound recording copyright owners to
perform their works publicly by means of certain digital audio
transmissions. The law was historic because it permitted sound recording owners, including performing artists, to receive compensation for the commercial use of their recorded performances and not
solely rely on income from sales of their recordings.
The law was limited because it exempted certain performances
from its protection, including those made by traditional broadcasters. This exemption for FCC-licensed broadcasters was premised on an understanding that, one, the promotional air play of
(1)

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00005

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

2
records by analog-radio broadcasters has long served as a catalyst
for music sales; and two, a recognition that the consumer taping
of analog-radio broadcasts did not create a significant threat to recording artists.
As we will hear today, many broadcasters believe that DPRA, as
well as amendments that were included in the DMCA which was
enacted in 1998, have been inappropriately applied to their operations by the U.S. Copyright Office and the Federal courts. In their
words, their view is that the application of certain provisions of
sections 114 and 112 of the Copyright Act have in fact resulted in
new and unreasonable burdens on radio broadcasters, burdens
they assert have resulted in more than 1,000 U.S. radio stations
ceasing their Internet broadcasting operations.
The general position of the broadcasters is they wish to relax certain protections that are intended to make it more difficult for
those who intend to pirate sound recordings to identify the songs
that are about to be played. They also object to paying royalties for
the performance of sound recordings and record-keeping requirements.
Not surprisingly, the RIAA which represents music labels, is opposed to a lessening of existing protections. In fact, they believe the
development of new technologies such as digital radio receivers
that can selectively identify, record and disaggregate specific songs
poses a grave threat not only to the livelihood of music artists, but
also to the advertiser-supported business model of radio broadcasters.
We are fortunate to have excellent witnesses with extensive experience related to the issues before this Subcommittee today, and
we all look forward to their testimony.
The Ranking Member, Mr. Berman, is recognized for his opening
statement.
Mr. BERMAN. Thank you, Mr. Chairman.
I appreciate your holding this oversight hearing on balancing the
interest of sound recording copyright owners and the broadcasters.
While I am confident in the outcome of the Bonneville case, I am
not convinced that pure webcasting and the simultaneous
webcasting of an over-the-air radio broadcast are identical activities which should be subject to the same licensing conditions. It
may be that the rule should be technology neutral, or it may serve
a greater public need to carve out exceptions to the rule to account
for the differences between the technologies.
But before we get to the points of controversy, I think it is important to note that at least all of the witnesses here today acknowledge that the prevention of piracy of sound recordings is an important goal. With the advent of new technologies, we are once again
faced with the problem of ensuring that performing artists, record
companies and others whose livelihood depends upon effective copyright protection for sound recordings will be protected. The Copyright Office has suggested granting copyright owners of sound recordings a full performance right to harmonize the rights of owners
of sound recordings with those of other copyright owners once and
for all. There is great appeal to that proposal in that we need to
focus not only on the immediate problem and seek the particular

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00006

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

3
solution, we can stop having the tail wagging the dog of whatever
technology is next.
Just a short time ago, we proposed a sound recording complement to prevent copying of music which would replace sales of
sound recordings. Now, there is already technology which allows
users to copy all of the recordings transmitted on a webcast channel, disaggregate them, save them to substitute for purchases of legitimate downloads or CDs, and redistribute them with peer-topeer software. In the near future, we will probably be back here to
discuss in depth the effect of digital audio broadcasting or HD
radio on the sound recording performance right as well.
I doubt that the witnesses before us today will express unified
support of a full performance right for sound recordings. In fact, I
dont even doubt it; I know they wont. Instead, broadcasters and
webcasters take issue with some of the provisions of the section
114 license.
For its part, the record industry illuminates problems emanating
from the ease of copying sound recordings from a broadcast or
webcast. Clearly, if we are going to have a section 114 webcasting
license, it should be a workable license. We should ensure that its
terms do not unduly burden licensees nor unduly impair the legitimate interests of copyright holders.
On the latter issue, I am concerned that several provisions of section 114 designed to deter piracy and preserve the recorded media
market are not working. Specifically, I refer to the sound recording
performance complement and the requirement that transmitting
entities accommodate copy protection technologies used by sound
recording copyright owners. It appears these provisions have fallen
short in terms of protecting the interests of sound recording copyright owners.
There will be testimony about the need or lack thereof for a separate license to cover multiple ephemeral copies. Section 112(e) created a statutory license to allow any service operating under the
section 114 statutory license to make one or more ephemeral recordings of a sound recording to facilitate the digital transmission
of these works governed by section 114.
Even the Copyright Office has stated that section 112(e) can be
best viewed as an aberration. However, the marketplace has borne
out that there is a value to multiple ephemeral copies.
There seems to be a discrepancy as to what the valuation of an
ephemeral copy is. Instead of computing a separate value for the
112 license to copy, could we put before the CARP establishing the
rate for the 114 license? Can we put before that CARP the requirement to include in its evaluation the value, if any, of the multiple
ephemeral copies?
I am aware it is described in the written testimony of NAB and
DiMA that there is some distrust among the broadcasters and the
webcasters of the CARP proceeding. After all, the claim is made
that stations pay at least five to six times as much for sound recordings royalties than for musical works. However, I am not sure
that speaks as much to the CARP as it does to the inequity of royalties paid to musical works copyright owners.
That being said, I agree that to some extent the CARP needs to
be reformed, and I therefore support H.R. 1417. Technology pro-

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00007

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

4
vides many new opportunities to reach new audiences. However,
we have to be aware of trampling on certain rights in order to get
there.
Thank you, Mr. Chairman.
Mr. SMITH. Thank you, Mr. Berman.
Are there other Members who wish to make opening statements?
Mr. Boucher is recognized.
Mr. BOUCHER. Thank you, Mr. Chairman. I want to commend
you for convening todays hearing. This is an important subject for
our Subcommittee, and it does deserve our attention.
In my view, webcasting of recorded music should receive the
same treatment under the copyright law that the more traditional
terrestrial broadcasts receive. Both webcasts and regular broadcasts deliver the same service, they merely deliver it by a different
means; and the current copyright law imposes far higher payments
on webcasters than on traditional broadcasters.
For example, radio stations pay no performance royalty when
they terrestrially broadcast recorded music. The theory of the exemption is that the copyright owners benefit enormously from the
publicity that accompanies repeat broadcast airings of their music.
Their reward comes through increased sales of CDs arising from
that publicity.
But radio stations must pay a performance royalty when the stations signal is streamed over the Internet. Webcasting is just another means for radio stations to reach an audience, and the same
theory that supports an exemption from royalty payments for regular terrestrial broadcasts should also support an exemption for
webcasting of the identical signal. And yet webcasting is burdened
with a payment that averages about 11 percent of gross receipts
from radio station webcasting.
This disparate treatment, to me, makes no sense. Here is another example of the unfair treatment of webcasting in comparison
to the treatment of comparable services. Satellite-delivered radio,
such as XM or Sirius, and radio delivered over cable systems pay
a performance royalty based on the standards that are set forth in
section 801(b). At the core of these standards is a fairness and reasonableness test.
But if the same radio signal is delivered over the Internet, the
fairness and reasonableness test no longer applies. Instead, the
webcaster royalty is set based upon what a willing buyer would pay
to a willing seller. That test assumes the presence of a functioning
competitive market for the music.
But the market is broken; there is no competition. The recording
industry has a statutory antitrust exemption which enables the labels to sell collectively and to establish a uniform price for music.
Essentially, there is only one seller in the market who can extract
a take-it-or-leave-it bargain. The result is that the willing buyerwilling seller standard imposes far higher royalties on webcasters
than are imposed on cable or satellite under the fairness standard
when exactly the same service is delivered. The only difference is
the platform that is used.
These disparities, Mr. Chairman, are wrong. We should not discriminate against the Internet as a distribution medium, but that

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00008

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

5
is exactly the effect of current law. And this law, to me, cries out
for reform.
I very much appreciate your examining this subject, Mr. Chairman, bringing to light these inequities, and I hope following this
hearing it will be the pleasure of this Subcommittee to adopt the
kinds of reforms that establish parity in copyright treatment across
all of the delivery platforms.
Thank you very much, Mr. Chairman. I yield back.
Mr. SMITH. Thank you.
Ms. Lofgren.
Ms. LOFGREN. Mr. Chairman, I will be brief. I am appreciative
we are having this hearing. I do think it is an important issue, and
as has been mentioned by Mr. Boucher, it provides us with an opportunity to level the playing field across technologies.
The situation we have today provides disincentives for Web
streaming, and I dont think there is any public interest in
disincenting the particular form of technology. We certainly want
to make sure that content creators are properly compensated. I
think there is unanimity on that score. But if that is the case in
radio that is land-based, it should be equally the same on satellite
or on webcasting.
We need to have a system that does not discriminate based on
technology. I am hoping also that we can consider the Bonneville
case, because I do think we need to deal with that on a head-on
basis.
Finally, I am interested in the whole issue of interactive services.
I think we have failed to give appropriate guidance to the Copyright Office on this issue, and although there will always be a gray
zone, I think the gray zone is a little bit broader than it needs to
be.
I think some of the new technologies and the Internet companies
have made it possible for listeners to request a genre, to request
a song, but they cannot decide when it is going to be heard. I dont
think that is a whole lot different than when I was a girl and calling into the radio station and requesting my favorite song, and
some day the DJ might play it. I am hopeful we can take a look
at that and narrow the gray area somewhat on the noninteractive
question.
With that, I look forward to hearing the witnesses. I appreciate
your courtesy, Mr. Chairman, and also Mr. Berman.
Mr. SMITH. Thank you, Ms. Lofgren.
Our first witness is David Carson, General Counsel of the Copyright Office of the United States Library of Congress. Mr. Carson
is the principal legal officer of the office with responsibility for the
offices regulatory activities, litigation and administration of the
copyright law. He also serves as a liaison on legal and policy matters to Congress and other Government agencies. Mr. Carson is a
graduate of Harvard Law School, and received his Bachelor of Arts
and Master of Arts degrees in history from Stanford University.
Our second witness is Dan Halyburton, who is the Senior Vice
President and General Manager of Susquehanna Radio Corporation. In that position, Mr. Halyburton oversees programming, interactive marketing, and research and engineering efforts for the
groups 33 U.S. stations. A resident of Dallas, Mr. Halyburton is a

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00009

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

6
past board member of the Texas Association of Broadcasters. He
testifies on behalf of the National Association of Broadcasters.
Our third witness is Steven Marks, General Counsel for the Recording Industry Association of America. He routinely represents
the RIAA on legislative issues, particularly those that relate to the
Copyright Act. In addition, he oversees litigation, licensing and
technology initiatives for the industry.
Mr. Marks is a graduate of Duke Law School where he served
as Articles Editor of the Duke Law Journal. In addition, he received his B.A. from Duke University.
Finally, Jonathan Potter, Executive Director of Digital Media Association, DiMA, a position he has held since DiMA was organized
in 1998. DiMAs goal is to represent the leading companies that
provide online audio and video content to consumers.
Mr. Potter is a graduate of New York University School of Law
and the University of Rochester. Most importantly, he is a newlywed, having just gotten married over the 4th of July. In fact, this
Committee did a very rare thing, we actually postponed by a week
this hearing to accommodate Mr. Potters schedule and wedding.
Mr. BERMAN. We did some other things during that week that
made up for it, though.
Mr. SMITH. Yes. Mr. Berman was wondering whether that was
a fair decision and trade or not.
It is a tradition of the full Committee and, hence, needs to be
done by the Subcommittee to swear in all witnesses.
[Witnesses sworn.]
Mr. SMITH. Just a quick reminder that all written testimony will
be made a part of the record. Please limit your comments to 5 minutes.
Mr. Carson.
TESTIMONY OF DAVID CARSON, GENERAL COUNSEL, COPYRIGHT OFFICE OF THE UNITED STATES, THE LIBRARY OF
CONGRESS

Mr. CARSON. Mr. Chairman, Mr. Berman, Members of the Subcommittee, thank you for inviting me to testify on behalf of the
Copyright Office on Internet streaming of radio broadcasts and section 114 of the Copyright Act.
As you know, the Digital Performance Right in Sound Recordings
Act of 1995 granted copyright owners of sound recordings, for the
first time, an exclusive right to make public performances of their
works by means of digital audio transmissions subject to a compulsory license for certain uses. The Digital Millennium Copyright Act
updated section 114 and expanded the scope of the compulsory license.
We at the Copyright Office believe that the creation of a limited
performance right in sound recordings was a step in the right direction. It has fostered the growth of new digital technologies
which support the legitimate use of music transmitted in digital
networks such as the Internet and satellite radio services. But
technological advances since the DMCA was enacted pose new
threats to performers and copyright owners, and this hearing provides an opportune occasion to reconsider the scope of the sound recording performance right and whether it offers sufficient economic

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00010

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

7
incentives for the investment in and creation of sound recordings
in light of the threats posed by the emergence of new technologies
that threaten to transform activities such as digital broadcasting
into interactive enterprises that may further weaken the traditional market for distribution of sound recordings.
It has been the long and consistent recommendation of the Copyright Office that sound recordings be given the same panoply of
rights as other categories of copyrighted works. However, recognizing the political difficulties of extending an exclusive public performance right to sound recordings, the office has also gone on
record in favor of a compulsory license governing public performances of sound recordings that, among other things, would require
broadcasters who transmit performances of sound recordings over
the air to pay a statutory royalty to copyright owners.
The DPRA and DMCA were steps in that direction, providing for
exclusive rights for copyright owners in connection with interactive
digital transmissions of public performances, and a statutory license for noninteractive digital subscription services, eligible nonsubscription servicesor webcastersand satellite digital audio
radio services; but over-the-air broadcasts of sound recordings remain exempt from the digital performance right.
While that state of affairs may have been acceptable in the past,
new technological developments lead us to believe that the time
has come for Congress once again to address the scope of the performance right.
The advent of digital broadcasting threatens the continued livelihood of the music industry as tools are being developed that promise to make it a simple matter to make perfect digital copies of all
of the recordings you want off the air. If Congress is not yet ready
to grant a full performance right for sound recordings, a right that
is recognized in most parts of the world, it should at least consider
extending the existing right to digital broadcast transmissions.
In the remainder of my time, I would like to give you an update
on some of the Copyright Offices activities in the administration
of section 114 and its statutory licenses.
Prior to the convening of the first copyright arbitration royalty
panel to determine rates and terms for the webcasting license, we
conducted a rule-making to address whether broadcasters who retransmit their over-the-air signals on the Internet have the same
legal status as any other webcasters and are subject to the statutory license for eligible nonsubscription services, or whether they
enjoy the same exemption on the Internet that they enjoy when
broadcasting over the air.
We concluded that section 114 treats them just like any other
webcasters when they are webcasting, and a Federal district court
and the United States Court of Appeals for the Third Circuit have
agreed. That issue now appears to be resolved, although broadcasters would dearly love to have you change the law.
When the CARP made its determination on rates and terms for
webcasting for the years 1998 to 2002, we reviewed that determination. The Register of Copyrights recommended to the Librarian of Congress that he cut the rates for Internet-only webcasters
because the CARPs determination on that issue was arbitrary, and
the Librarian accepted that recommendation. Those rates expired

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00011

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

8
at the end of the year 2002, and the rates that are currently in
place were negotiated by broadcasters, webcasters and copyright
owners. Those negotiated rates are remarkably similar to the earlier rates.
We are also establishing notice and recordkeeping regulations
governing digital music services operating under the statutory license. These regulations play a crucial role in ensuring that the
royalties paid under these licenses ultimately are paid to the copyright owners and performers whose sound recordings are played on
these services. Without accurate identification of the recordings
that are being played, there is no way to ensure that the royalties
reach the artists and record companies who are entitled to them.
Just this week, we announced proposed regulations governing notice and recordkeeping for the period during which webcasters have
not been reporting their performances. Those regulations will designate the reports already made by preexisting subscription services for the same period as proxies for records of performances by
webcasters. This solution will resolve the problem of how to account for performances by webcasters who have no records of what
they have performed in the past.
As always, Mr. Chairman, the Copyright Office stands ready to
assist you as you consider the important issues we are addressing
this morning.
Mr. SMITH. Thank you, Mr. Carson.
[The prepared statement of Mr. Carson follows:]
PREPARED STATEMENT

OF

DAVID O. CARSON

Mr. Chairman, Mr. Berman, and distinguished members of the Subcommittee, I

appreciate the opportunity to appear before you on behalf of the Copyright Office
to testify on internet streaming of radio broadcasts. In my testimony today, I will
address the workings of the section 114 compulsory license and the role the Copyright Office has played in administering this license. As you know, in 1995, Congress passed the Digital Performance Right in Sound Recordings Act of 1995
(DPRA) 1 which, for the first time, granted to copyright owners of sound recordings
an exclusive right to make public performances of their works by means of certain
digital audio transmissions, subject to a compulsory license for certain uses of these
works codified in section 114 of title 17 of the United States Code. In the Digital
Millennium Copyright Act (DMCA) 2 of 1998, Congress updated section 114 and
expanded the scope of the compulsory license.
We at the Copyright Office believe the creation of a limited performance right in
sound recordings was a step in the right direction. It has fostered the growth of new
digital technologies which support the legitimate use of music transmitted in digital
networks such as the Internet and satellite radio services. However, there are those
who still oppose a public performance right in sound recordings and would oppose
any further expansion of that right beyond the limited performance right granted
to the copyright owners by virtue of the passage of the DPRA and the DMCA.
Whether to expand the scope of the performance right or limit it further remains
the prerogative of Congress. But we are convinced that after considering the current
state of affairs and the workings of the section 114 statutory license, Congress
should be reassured that the creation of a digital performance right, although limited in its scope, was the proper step to take at that time in order to strike a workable balance between the rights of the copyright owners and the demands of users
who wished to use these works in new and creative ways.
In fact, technological advances since the DMCA was enacted in 1998 pose new
threats to performers and sound recording copyright owners, and this hearing provides an opportune occasion to reconsider the scope of the performance right for
sound recordings and whether it offers sufficient economic incentives for the investment in and creation of sound recordings in light of the threats posed by the emer1 Pub.
2 Pub.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

L. No. 10439, 109 Stat. 336 (1995).

L. No. 105304, 112 Stat. 2286 (1998).

Jkt 089266

PO 00000

Frm 00012

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

9
gence of additional new technologies that threaten to transform activities such as
digital broadcasting into interactive enterprises that may further weaken the traditional market for distribution of sound recordings
BACKGROUND

Sound recordings did not receive protection under the 1909 Copyright Act or
under earlier versions of the copyright law. Instead, a copyright owner had to seek
relief at common law in state courts for unlawful use of their works. That changed
in 1971 when Congress enacted a law, effective February 15, 1972, that granted exclusive rights of reproduction and distribution to copyright owners of sound recordings.3 Congress took this action in order to curb the mounting losses suffered by the
record industry from the burgeoning trade in pirated records and tapes. However,
Congress did not grant the full bundle of rights given to other copyright owners because traditional users of these works fiercely opposed a performance right for
sound recordings. Moreover, the more limited set of rights seemed sufficient to deal
with the immediate problem of record piracy.
Even so, those who opposed federal copyright protection for sound recordings
mounted a constitutional challenge to the amendment adding a limited copyright for
sound recordings. Twice, the courts considered the question and in both cases the
courts upheld the law as constitutional,4 confirming the position long held by the
Copyright Office that a sound recording was capable of being considered the writing of an author within the constitutional sense 5 and reinforcing the conclusion
that sound recordings are creative works worthy of full copyright protection.6
Although these events settled the basic question of copyrightability and questions
with respect to the reproduction and distribution rights for sound recordings in the
early 1970s, the debate on whether and to what extent sound recordings should
enjoy full federal copyright protection that began in the 1960s has continued. In
most cases, stakeholders have retained their original positions during the intervening period, although there is now a general consensus that performers and
record producers creative contributions are entitled to some degree of copyright protection.
Historically, television and radio broadcasters, jukebox operators, and wired music
servicesthe traditional users of the sound recordings who publicly perform sound
recordingshave opposed any changes to the Copyright Act that would require payment of a royalty for the performance of a sound recording. These users were already paying authors and publishers of musical works for the right to perform the
musical works embodied in sound recordings and saw no reason to make a second
payment to performers and record companies for the same performance. Traditional
users, however, did not stand alone in their opposition to the movement for a full
performance right. In the early 1960s, music publishers aligned themselves with
these users and opposed the public performance right for sound recordings because
they feared that the creation of a sound recording public performance right would
result in a decrease in their stream of revenue. Basically, they envisioned that the
royalty pool generated from the public performance of recorded music would remain
fundamentally the same and that they would have to share these royalties with the
record companies and the performers of sound recordings.
On the other side of the debate stood the representatives of the record companiese.g., the Recording Industry Association of America (RIAA)and representatives of the performerse.g., the American Federation of Musicians (AFM). The
record company representatives took the position that there was no principled reason for treating sound recordings differently from other categories of works. AFM
took a broader view. It focused more sharply on the economic deprivation experienced by performers who received no compensation from the public performance of
3 Sound

Recording Act of 1971, Pub. L. 92140, 85 Stat. 391 (1971).

Shaab v. Kleindienst, 345 F. Supp. 589 (D.D.C. 1972) (sound recordings qualify as
writings of an author that may be copyrighted); Goldstein v. California, 412 U.S. 546 (1973) (the
term writing can be broadly interpreted by Congress to include sound recordings).
5 See Supplementary Registers Report on the General Revision of the U.S. Copyright Law,
House Comm. Print (1965) at 51 (1965 Supplementary Registers Report) (We believe that,
leaving aside cases where sounds have been fixed by some purely mechanical process involving
no originality whatever, the aggregate of sounds embodied in a sound recording is clearly capable of being considered the writing of an author in the constitutional sense. . . . Thus, as indicated in the 1961 Report, we favor extending statutory copyright protection to sound recordings.).
6 See Statement of Barbara Ringer, Register of Copyrights, before the Subcommittee on Patents, Trademarks and Copyrights of the Committee on the Judiciary, United States Senate, pursuant to S. Res. 72 on S. 111, July 24, 1975, at 11(July 1975 Statement of the Register of Copyrights).
4 See

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00013

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

10
their own recordings, while others, including jukebox operators, radio and television
broadcasters and wired music services - as well as composers and music publishersbenefitted commercially from these actions. However, AFM did offer a solution to the problem in 1967, during the early stage of the debate regarding the revision of the 1909 Act. It proposed an amendment to establish a special performing
right that would endure for 10 years and would be subject to compulsory licensing, 7 a novel idea that would not come to fruition in any form until thirty years
later.
Copyright owners and performers were not alone in their quest for the elusive
performance right. On a number of occasions during consideration of the omnibus
bill to revise the 1909 Copyright Act and since, the Copyright Office has voiced its
unwavering support for the creation of a full performance right for sound recordings,
while also acquiescing to proposals to subject the right to a compulsory license.8 In
fact, the push for a performance right nearly paid off. Proponents were successful
in getting Senator Harrison Williams to introduce a formal amendment to the 1967
Senate bill which, among other things, aimed to create a compulsory license for the
public performance of sound recordings. The amendment was accepted when the revision bill was reported by the Senate Subcommittee on Patents, Trademarks and
Copyrights to the full Judiciary Committee on December 10, 1969, and remained in
the 1971 and 1973 bills, which were reported favorably by the full Senate Judiciary
Committee on July 3, 1974. The amendment, however, did not survive opponents
efforts to remove the provision from the bill, and it was removed from the 1975 revision bills in both the Senate and the House.
In fact, the issue was so explosive that in 1975, Register of Copyrights Barbara
Ringer refrained from pushing for the creation of even a limited public performance
right for sound recordings in the omnibus bill, and testified accordingly:
At the same time it must be said that, on the basis of experience, if this legislation were tied to the fact of the bill for general revision of the copyright law,
there is a danger that it could turn into a killer provision that would again
stall or defeat omnibus legislation. This danger exists even more clearly than
when I testified to this same effect last July, and would be very severe if the
potential compulsory licenseesnotably the broadcasting and jukebox industriesexerted their considerable economic and political power to oppose the revision bill as a whole. Should this happen, there could be no question about priorities. The performance royalty for sound recordings would have to yield to the
overwhelming need for omnibus reform of the 1909 law.9
Thus, when Congress passed the 1976 Copyright Act, it did not include a performance right for sound recordings. It did, however, ask the Copyright Office to submit
a report on January 8, 1978, making recommendations as to whether Congress
should amend the law to provide performers and copyright owners any performance
rights in sound recordings. But change could not occur in a hostile environment.
In that report, the Copyright Office reaffirmed its earlier position and stated without qualification that a right of public performance for sound recordings is fully warranted, offering the following explanation for its unwavering position:
Such rights are entirely consonant with the basic principles of copyright law
generally, and with those of the 1976 Copyright Act specifically. Recognition of
these rights would eliminate a major gap in this recently enacted general revision legislation by bringing sound recordings into parity with other categories
of copyrightable subject matter. A performance right would not only have a salutary effect on the symmetry of the law, but also would assure performing artists of at least some share of the return realized from the commercial exploitation of their recorded performances.10
The predicate underlying this positionthat the creation and delivery of music requires a joint effort by songwriters and music publishers as well as performers,
record producers and record companieswas not widely recognized in the early
1960s, and even in the early 1970s certain opponents of the performance right con7 See Second Supplementary Report of the Register of Copyrights on the General Revision of
the U.S. Copyright Law: 1975 Revision Bill, October-December 1975, pp. 214216 [Draft] (Registers Second Supplementary Report).
8 See 1965 Supplementary Registers Report; July 1975 Statement of the Register of Copyrights; and Register of Copyrights, Report on Performance Right in Sound Recordings, H.R. Doc.
No. 15 (1978) (1978 Report on Performance Right in Sound Recordings).
9 Testimony of Barbara Ringer, Register of Copyrights (December 4, 1975), before the House
of Representatives, Subcommittee on Courts, Civil Liberties, and the Administration of Justice
of the Committee on the Judiciary on H.R. 2223, Serial No. 36, part 3, at 1908 (1975).
10 1978 Report on Performance Right in Sound Recording, at 177.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00014

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

11
tinued to argue that sound recordings lacked sufficient creativity to justify copyright
protection.11 Nevertheless, the realization that the creation and delivery of music
had changed dramatically over time and was the result of the contributions not only
of composers and music publishers but also of performers and record producers
gradually took hold, becoming a generally accepted principle by 1978, and one which
remains unquestioned today.
Yet, in spite of this general understanding and the efforts of those who supported
a full performance right for sound recordings, no legislation was passed in response
to the Offices 1978 recommendation, and the controversy died down. The debate remained relatively dormant until the late 1980s. Congress acknowledged that the development of digital audio tape (DAT) machines posed a real threat to the record
industry and passed the Audio Home Recording Act of 1992 (AHRA).12 Congress
passed AHRA to allay the fears of copyright owners that consumers would use the
new technology to make unauthorized high - quality digital reproductions en masse,
thus displacing sales in the marketplace.13 It did so by requiring the incorporation
of a Serial Copy Management System into each digital audio recording device in
order to prevent serial copying, and by requiring payment of a royalty fee for the
importation and distribution, or manufacture and distribution, of digital audio recording media and devices. AHRA also immunizes a consumer who has made a noncommercial reproduction of a musical recording as provided in Chapter 10 of Title
17 from suit for infringing the reproduction right of the copyright owners, although
it does not transform infringing consumer uses into non-infringing ones. And it does
not cover reproductions of songs stored on a computer in which one or more computer programs are fixed.
But use of DAT recorders was merely the tip of the iceberg. Digital technology
continued to advance at a rapid pace, forcing Congress to reexamine the effect of
new digital technologies on the record industry. The outcome of this reevaluation
was an acknowledgment from Congress in 1995 that the advent of on-demand digital subscription services and interactive services posed a serious threat to performing artists and record companies. Record companies believed, and rightfully so,
that consumers would adapt to the new technologies and use these services to fulfill
their desire to obtain music, and do so without having to purchase a retail phonorecord.
Consequently, after carefully weighing the rights of the copyright owners against
its desire to foster new technologies and business models, Congress took action in
1995 and passed the Digital Performance Right in Sound Recordings Act (DPRA),
which granted copyright owners of sound recordings an exclusive right to perform
their works publicly by means of certain digital audio transmissions, subject to certain limitations. In taking this action, Congress sought to preserve and protect the
livelihoods of the recording artists, songwriters, record companies, music publishers
and others who depend upon revenues from traditional record sales, . . . without
hampering the arrival of new technologies, and without imposing new and unreasonable burdens on radio and television broadcasters, which often promote, and appear to pose no threat to, the distribution of sound recordings. 14
For this reason, the DPRA restricted the application of the new digital performance right to interactive services and subscription services, and specifically exempted traditional over-the-air broadcasts and related transmissions, including certain
retransmissions of radio signals and incidental transmissions and retransmissions
made to facilitate an exempt transmission. It created these exemptions in recognition of the fact that the possibility of these transmissions displacing sales was never
very high. It also included a statutory license for subscription services so that these
services could avoid the difficulties involved in direct licensing and devote more of
their resources to developing new business models for the benefit of the public.
However, services operating under the statutory license are subject to specific
terms that are designed to limit unauthorized copying of the works by the recipient
of the performance. These terms include requirements that the service avoid the use
of a signal that would cause the receiver to change from one program to another;
refrain from publishing or preannouncing particular songs that will be played during the course of a program; and schedule songs to avoid playing too many different
songs by the same artist or from the same phonorecord in a short period of time
or, to state it in legal terms, to avoid violating the sound recording performance
complement.
11 See

Registers Second Supplementary Report at 221.

L. No. 102563, 106 Stat. 4237 (1992).
13 H. Rep. No. 102873, at 1819 (1992).
14 S. Rep. No. 104128, at 1415 (1995).
12 Pub.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00015

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

12
While these terms did offer a measure of protection to copyright owners and performers during the early days of the technological era, they only covered those problems associated with services in existence at the time. It soon became apparent that
the DPRA was too narrow. It failed to anticipate the rapid development of the Internet and its ability to offer perfect digital transmissions to a global audience instantaneously. Thus, three years later, Congress had to revisit the issue of digital audio
transmissions and consider how the digital performance right applied to new noninteractive, nonsubscription services that were springing up overnight and offering
real time transmissions of a wide variety of musical choices over the Internet to
anyone who had a computer.
These services, commonly referred to as webcasters, offered for the first time a
rich and diversified selection of music for free over a communications network that
was readily accessible to anyone with an internet connection. The problem, however,
was the unique programming options that these services offered. For example, some
webcasters offered artist-only channels that played works of one artist continuously 24 hours a day, while other webcasters offered programming techniques that
permit listeners to influence the selection of sound recordings that are part of programs created by the webcasters. 15 In light of these programming capabilities and
the exponential growth of these new services, Congress recognized that even nonsubscription services can pose a threat to the economic health of the record industry. For this reason, it again amended section 114 with the passage of the DMCA
to clarify that the digital performance right applied to these non-subscription
webcasters and that these services came within the scope of the statutory license.
Moreover, Congress imposed additional terms, beyond those already adopted under
the DPRA, on these new nonsubscription services in order to address the programming and technological problems raised by Internet transmissions.
Specifically, the expanded section 114 license requires licensees: to cooperate with
copyright owners to prevent recipients from using software or devices that scan
transmissions for particular sound recordings or artists; 16 to allow for the transmission of copyright protection measures that are widely used to identify or protect
copyrighted works; 17 and to disable copying by a recipient in the case where the
transmitting entity possesses the technology to do so, as well as taking care not to
induce or encourage copying by the recipient.18
Congress also made a few other modifications to the Copyright Act in 1998. One
major change was the creation of a second statutory license in section 112(e). This
license allows any service operating under the section 114 statutory license to make
one or more ephemeral recordings 19 of a sound recording to facilitate the digital
transmissions of these works governed by section 114. The DMCA also differentiated
between those services that were operating prior to the passage of the 1998 amendments and those that came on line after the DMCAs date of enactment, October
28, 1998. The three preexisting subscription services (Music Choice; DMX Music,
Inc.; and Muzak, L.P.) and the two preexisting satellite digital audio radio services
(Sirius Satellite Radio, Inc. and XM Satellite Radio, Inc.) comprise the former group
and all other services fall into the latter category. Prior to the DMCA, the rates for
the preexisting services were set in accordance with four statutory objectives that
also apply to some of the other statutory licenses but do not necessarily yield a marketplace rate.20 These services retained this standard when section 114 was amend15 Committee of the Judiciary House of Representatives, Section-by-Section Analysis of H.R.
2281 as passed by the United States House of Representatives on August 4, 1998, at 52 (Comm.
Print 1998).
16 17 U.S.C. 114(d)(2)(C)(v).
17 17 U.S.C. 114(d)(2)(C)(viii).
18 17 U.S.C. 114(d)(2)(C)(ii).
19 These reproductions are referred to as ephemeral copies because they generally must be destroyed within six months of the first transmission to the public.
20 Section 801(b)(1) provides that rates applicable under sections 114(f)(1)(B), 115, and 116
shall be calculated to achieve the following objectives:
(A) To maximize the availability of creative works to the public;
(B) To afford the copyright owner a fair return for his creative work and the copyright
user a fair income under existing economic conditions;
(C) To reflect the relative roles of the copyright owner and the copyright user in the
product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of
new markets for creative expression and media for their communication; and
(D) To minimize any disruptive impact on the structure of the industries involved and
on generally prevailing industry practices.
17 U.S.C. 801(b)(1).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00016

Fmt 6633

Sfmt 5602

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

13
ed in 1998 even though Congress adopted a willing buyer/willing seller standard for
setting rates for all other services operating under section 114.
Congresss responses to threats from new digital technologies in 1995 and in 1998
were limited, just as in 1971. Each time, Congress has chosen to focus only on the
immediate problems presented to it and to calibrate the rights of sound recording
copyright owners to address these particular problems, rather than adopt a full performance right, even though many urged Congress to grant sound recording copyright owners a full performance right. In testimony before the Senate Judiciary
Committee in 1995, the Register of Copyrights restated the Offices steadfast support for a full performance right for sound recordings, citing the need to harmonize
the rights for copyright owners of sound recordings with those of the music publishers once and for all.21 Moreover, an earlier study conducted by the Copyright
Office in 1991 had underscored the need for such a right as a means to protect
record companies and performers who suddenly were faced with the high probability
that digital technology would provide readily available distribution channels for the
reproduction and performance of their works without a counterbalancing means to
compensate the creators of the sound recordings.22
In light of this danger, there was no principled reason to continue to allow one
groupmusic publishersto receive compensation for the performance of their
works while denying another similarly situated group of copyright ownersrecord
companiesthe same right to collect royalties for the very same performance, especially in the case where the users businesses relied heavily on the use of the creators works to turn a profit. This is an observation that has been made repeatedly
in support of a full performance right and one articulated by the Working Group
on Intellectual Property Rights in its 1995 report on Intellectual Property and the
National Information Infrastructure.23 This report characterized the lack of a performance right in sound recordings as an historical anomaly that does not have a
strong policy justificationand certainly not a legal one. Sound recordings are the
only copyrighted works that are capable of being performed that are not granted
that right. 24
Nevertheless, most users of these works continue to oppose a full performance
right for sound recordings and argue that the economies in the current marketplace
favor the user and the emerging technologies over the creator, even those who stand
on the opposite side of the argument when it is their works that are being targeted
for use by another group. Indeed, in the last few weeks, broadcasters have participated in meetings at WIPO considering proposals for a treaty that would obligate
countries to provide exclusive rights to broadcasting organizations against the fixation, rebroadcasting and retransmission of their broadcast signals, among other
rights. The broadcasters claim this new protection is necessary due to changes in
technology, such as the Internet, which threaten their existing business models.
They seek these rights notwithstanding their efforts here in the United States to
oppose and limit the same rights for the creators of the sound recordings that the
broadcasters transmit. Paradoxically, if such a treaty is concluded, broadcasters
may be able to exercise exclusive rights over their performance of sound recordings
even though the copyright owners of the same sound recordings have no rights in
that context.
Congress has the power to remedy this situation and strike the proper balance
in favor of a full performance right. Thus, the question should no longer be whether
Congress should provide a full performance right for sound recordings, but rather
whether it should be subject to statutory licensing and, if so, what the value of that
right should be in order to insure that copyright owners and performers have sufficient monetary incentives to continue to create works for the enjoyment of the public, and what restrictions, if any, should be placed on that right to insure the viability of new businesses to disseminate the works in a high-quality, readily accessible
format. Stated another way, the challenge of copyright in this context, as it is in
general, is to strike the difficult balance between the interests of authors and inventors in the control and exploitation of their writings and discoveries on the one
21 Statement of Marybeth Peters, Register of Copyrights, before the Senate Committee on the
Judiciary (March 9, 1995).
22 Report of the Register of Copyright, Copyright Implications of Digital Audio Transmission
Services (October, 1991).
23 Information Infrastructure Task Force, Intellectual Property and the National Information
Infrastructure: The Report of the Working Group on Intellectual Property Rights (Sept. 1995).
24 Id. at 222.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00017

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

14
hand, and societys competing interest in the free flow of ideas, information, and
commerce on the other hand. 25
THE SECTION 114 STATUTORY LICENSE- HOW IT AFFECTS BROADCASTERS

Although the digital performance right enacted in 1995 and expanded in 1998 is
a step in the right direction, it is not an unfettered right. It is subject to certain
exemptionse.g., nonsubscription broadcast transmissions are exemptand to a
statutory license for certain noninteractive transmissions. Pursuant to this license,
many digital transmissions of performances of sound recordings may be made without the permission of the copyright owner if the licensee adheres to the terms of
the license, pays the statutory royalties, and complies with the Copyright Office regulations governing notice and recordkeeping. Users, however, have complained that
the license terms and regulatory requirements have in some cases created barriers
that prohibit them from taking advantage of the license.
a. Scope of the exemption for nonsubscription broadcast transmissions.
Broadcasters have been particularly vocal about their treatment under the license, arguing in the first instance that they should not be subject to the digital
performance right for their digital, Internet-based activities, such as webcasting. At
the outset of the first rate setting proceeding for the webcasting license, broadcasters argued that retransmissions of AM/FM broadcast programming enjoyed an
exemption from the newly created digital performance right and that simulcasts of
radio broadcast programming therefore were not subject to the statutory license.
The recording industry and associations representing the interests of performers 26
did not agree. They opposed this interpretation and sought a ruling from the Copyright Office declaring that retransmissions of a broadcast signal over a digital communications network, such as the Internet, were not exempt from the digital performance right under section 114(d)(1)(A) of the Copyright Act, as amended by the
DMCA. Because the resolution of this question would determine whether broadcasters chose to participate in the rate setting process and because it was necessary
to resolve whether the rates being set would apply to broadcasters retransmissions
over the Internet, the Copyright Office postponed the rate setting hearing until it
could decide the legal questions posed by the broadcasters and the record industry.
Broadcasters, however, questioned the Offices authority to conduct a rulemaking
to ascertain whether simulcasts of AM/FM broadcast programming over the Internet
came within the scope of the section 114 statutory license. For this reason, the National Association of Broadcasters (NAB) filed an action in the U.S. District Court
for the Southern District of New York, seeking a declaratory ruling on the issue.27
This action was eventually withdrawn. In the meantime, the Copyright Office conducted a notice and comment rulemaking proceeding and made a determination that
the exemption for broadcast transmissions did not include transmissions made over
a digital communications network such as the Internet.28
The key question in this proceeding centered on the meaning of the phrase, nonsubscription broadcast transmission, which is not defined expressly in the law.
More specifically, the analysis focused on the statutory definition of the term broadcast transmission. The statutory definition characterizes a broadcast transmission
as a transmission made by a terrestrial broadcast station licensed as such by the
Federal Communications Commission. 29 The Office then focused on the phrase licensed as such by the FCC, finding that it limited the exemption to those transmissions made under a license issued by the FCC, and that these transmissions are
limited to the local service area of the radio transmitter. In reaching this conclusion,
the Office noted that Congress used the descriptive term over-the-air frequently
in the legislative history to identify those broadcasts that it sought to protect under
25 Sony

Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984).
26 RIAA represented the interests of the record industry in the rate setting proceeding and
the rulemaking proceeding to address the legal questions regarding the scope of the section 114
statutory license as it relates to simulcasts of broadcast radio programming over a digital communications network, like the Internet. The Association of Independent Music, the AFM, and
the American Federation of Television and Radio Artists filed comments jointly with the RIAA
in the rulemaking proceeding.
27 See NAB v. RIAA, 00CV2330 (S.D.N.Y.).
28 65 Fed. Reg. 77292 (Dec. 11, 2000) (amending the regulatory definition of a service in
order to clarify that transmissions of sound recordings by means of digital audio transmissions
over a communication network, such as the Internet, are not exempt from copyright liability
under section 114(d)(1)(A) of the Copyright Act).
29 17 U.S.C. 114(j)(3).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00018

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

15
the exemption and never referenced any other type of transmission made by an
FCC-licensed broadcaster when discussing the scope of the exemption.
In addition, the Office determined that had Congress wished to exempt all transmissions made by an FCC-licensed broadcasterthe position urged by the broadcastersthen there would not have been a need to carve out additional exemptions
to cover certain retransmissions of an AM/FM radio broadcast program. In reaching
this conclusion, the Office focused on an exemption in the law which provides that
the performance of a sound recording by means of a digital audio transmission is
not an infringement in the case of a retransmission of a radio stations broadcast
transmission, provided that the radio stations broadcast transmission is not willfully or repeatedly retransmitted more than a radius of 150 miles from the site of
the radio broadcaster. 30
Broadcasters had argued that this 150-mile exemption applied only to third parties who retransmitted the original broadcast programming and not to the original
broadcaster, but the Office rejected this interpretation. The law draws no distinction
between the original broadcaster and third party retransmitters, nor does it or the
legislative history offer any reason why Congress would allow original broadcasters
to retransmit their programming globally while at the same time restricting the retransmissions of others to a defined geographic area.
In fact, an exception in the law to the 150-mile limitation for retransmissions of
a radio signal in the case where the radio signal is retransmitted on a nonsubscription basis by a terrestrial broadcast station, terrestrial translator, or terrestrial repeater licensed by the Federal Communications Commission 31 supports this position. In all cases, the purpose of these provisions is to restrict each retransmission
of a digital audio transmission of a radio signal to a limited geographic area, even
in those instances where the retransmissions are done by terrestrial physical facilities regulated by the FCC.
The Office found further support for its determination that broadcasters could not
retransmit AM/FM radio programming over the Internet when it examined section
112, the provision that governs the making of ephemeral copies of sound recordings
necessary to facilitate a public performance under the section 114 statutory license.
While traditional broadcasters can make a single server copy of their radio programs to facilitate their over-the-air broadcasts under an exemption in section
112(a), webcasters are unable to rely upon this provision for making all the necessary ephemeral recordings that are needed to facilitate a transmission over the
Internet. Webcasting requires more than a single copy of a work to effectively transmit over the Internet. For this reason, Congress created a second statutory license
in section 112(e) which, subject to the rates and terms of the statutory license, allows a webcaster operating under the section 114 statutory licensing regime (or certain services that provide transmissions to a business establishment for use during
the normal course of business) to make one or more ephemeral recordings to facilitate their transmissions. Thus, broadcasters who wish to retransmit their radio station programs over the Internet would have to operate under the section 114 license
in order to be eligible under the section 112(e) statutory license to make all the
ephemeral recordings needed to effectuate the retransmission of the AM/FM radio
program over the Internet.
Not surprisingly, the broadcasters did not accept the Offices determination. They
immediately filed a lawsuit under the Administrative Procedure Act challenging the
Registers determination, but the Registers decision was upheld by both the district
and the appellate courts.32
In making its decision, the United States Court of Appeals for the Third Circuit
rejected the broadcasters fundamental argument that Congress had intended to
provide a broad exemption to cover any transmission made by a licensed broadcaster. Specifically, it held that the reference to broadcast station in the definition
of a broadcast transmission referred to the physical facility licensed by the FCC
and not to the broadcaster. It noted that under the FCC rules a station must be
a physical facility and that the FCC license referenced in the statutory definition
must be tied directly to the operation of a particular facility rather than a corporate
entity. Consequently, the court held [a] broadcast transmission under
114(d)(1)(A) would therefore be a radio transmission by a radio station facility operated subject to an FCC license and would not include a webcast. AM/FM
webcasting does not meet the definition of a nonsubscription broadcast trans30 17

U.S.C. 114(d)(1)(B)(i).
U.S.C. 114(d)(1)(B)(i)(I).
32 Bonneville Intl. Corp. v. Peters, 347 F.3d 485 (3rd Cir. 2003), affg 153 F. Supp.2d 763 (E.D.
Pa. 2001).
31 17

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00019

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

16
mission and does not therefore, qualify under 114(d)(1)(A) for an exemption from
the digital audio transmission performance copyright of 106(6). 33
The court found additional support for its conclusions in the fact that Congress
included additional exemptions from the digital audio transmission performance
right for retransmissions of certain nonsubscription broadcast transmissions, noting
that the common-sense reading of the exemptions in 114(d)(1)(B) requires an interpretation that does not differentiate between webcasting of AM/FM radio programming by one group, i.e, broadcasters, and webcasts of the exact same programming
by third parties. Likewise, the court read the legislative history of the DPRA and
the DMCA as supporting an exemption for traditional radio broadcasts, and concluded that the exemption for a nonsubscription broadcast transmission, which
was added with the passage of the DPRA in 1995, did not contemplate protecting
AM/FM webcasts by any group.
This interpretation of the scope of the exemption for nonsubscription broadcast
transmissions offered by the Office and by the courts is totally consistent with Congress perception at the time the DPRA was enacted that traditional over-the-air
radio did not pose a threat to the record industry.
b. Interactive services.
The section 114 statutory license is not available to an interactive service. Such
a service is defined, in general, as one that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request,
a transmission of a particular sound recording, whether or not as part of a program,
which is selected by or on behalf of the recipient. 34 Interactive services must negotiate separate licenses in the marketplace with the copyright owners of the sound
recordings for the right to perform publicly specific sound recordings by means of
a digital audio transmission. Congress took this position and imposed full copyright
liability on interactive services because Congress realized these services had the
greatest potential for displacing record sales. Consequently, in 2000 the Digital
Media Association (DiMA) petitioned the Copyright Office to initiate a rulemaking
proceeding for the purpose of adopting an amendment to the rule defining the term
Service to make it clear that a service is not interactive simply because it offers
the consumer some degree of influence over the programming offered by the
webcaster.
After considering DiMAs arguments for initiating the rulemaking and RIAAs opposing arguments, the Office determined that a rulemaking was not the appropriate
way to resolve the question of interactivity because there was no way to articulate
with any precision specific guidelines that would distinguish between an interactive
service and an non-interactive service beyond what was already in the statute, especially when business models were undergoing constant change.35 Moreover, the Office noted that such a determination had to be made on a case-by-case basis after
the development of a full evidentiary record in accordance with the standards and
precepts already established in the law. 36 Consequently, the Office denied the petition.
c. Notice and recordkeeping requirements.
Sections 114(f)(4)(A) and 112(e)(4) require the Librarian of Congress to establish
regulations specifying notice and recordkeeping requirements for use of sound recordings in a digital transmission. Accordingly, the Office issued interim regulations
on March 11, 2004, specifying notice and recordkeeping requirements for use of
sound recordings under the sections 112 and 114 statutory licenses.37 These rules
require users of the section 112 and 114 statutory licenses to report on the sound
recordings they perform so that SoundExchange, the collective that collects the statutory royalties and disburses them to copyright owners and performers, knows how
to divide up the royalties for performances of sound recordings. Because the amount
of royalties paid to each copyright owner and performer depends upon the number
33 Id. at 495.
34 The statutory definition provides additional explanatory language to distinguish between
interactive and non-interactive services, stating that [t]he ability of individuals to request that
particular sound recordings be performed for reception by the public at large, or in the case of
a subscription service, by all subscribers of the service, does not make the service interactive,
if the programming on each channel of the service does not substantially consist of sound recordings that are performed within 1 hour of the request or at a time designated by either the transmitting entity or the individual making such request. If an entity offers both interactive and
noninteractive services (either concurrently or at different times), the noninteractive component
shall not be treated as part of an interactive service. 17 U.S.C. 114(j)(7).
35 65 Fed. Reg. 77330 (Dec. 11, 2000).
36 Id. at 77332.
37 69 Fed. Reg. 11515 (March 11, 2004).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00020

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

17
of performances of each sound recording, such reporting is crucial to the operation
of the statutory license. Requirements have long been in place for preexisting subscription services, and we believe they are working well.38
However, the rulemaking proceeding governing notice & recordkeeping requirements for eligible nonsubscription services such as webcasters is ongoing, and it has
proved to be difficult and controversial. Representatives of record companies and
performers have sought comprehensive information about each and every performance of each and every sound recording transmitted by a service, arguing that such
information is essential in order to ensure that the correct amount of royalties is
paid to each copyright owner and performer, and that information that will permit
monitoring compliance with the requirements of the sound recording performance
complement is also needed. Webcasters and broadcasters opposed such detailed reporting requirements, asserting that they would be excessive and too onerous for an
industry that historically has accounted for its performances of musical works in a
totally different manner. Throughout the rulemaking, they maintained that the Office should require reporting of only that information that would identify the sound
recording for purposes of making a distribution of royalties. Specifically, they submitted that only five data elements would be needed for this purpose : name of the
service, sound recording title, name of the artist, call sign of the station and date
of transmission. They also suggested that the rules should allow services to obtain
this information through a sampling process (e.g., providing information for only two
weeks out of every year) rather than accounting for each performance.
In adopting interim regulations setting the requirements for the information that
eligible nonsubscription services must report to SoundExchange, we rejected the
type of sampling proposed by broadcasters because it would be likely to under reportor omit reporting at allperformances of the lesser known artists and performers receiving playtime from those webcasting services that offer multiple channels of niche programming, covering an array of genres, e.g., hip-hop, gospel, classical, country, folk, new age, and pop. Morever, we found it difficult to credit claims
from webcasters that although their transmissionsand frequently the programming of the content of their transmissionsare controlled and accomplished by the
use of computers, they would be unable to report all actual performances of sound
recordings. Ideally, this computer-driven medium should be well-suited to the reporting of actual performance data that would ensure that each copyright owner and
performer is compensated for the value of the transmissions of performances of his
or her recordings.
On the other hand, we recognized that for many webcasters, maintaining and reporting any information at all about their transmission of performances would be
a novel experience, and that it would be desirable to have a period of transition during which they would become accustomed to such reporting. Thus, while it is likely
that we shall require year-round reporting of all performances in the not-too-distant
future, the new interim rules require licensees to maintain records for two weeks
out of every quarter, identifying which sound recordings were performed during this
period and how often they were performed. In deriving these rules, the Office balanced the need to obtain accurate information about performances of specific sound
recordings for purposes of compensating as many copyright owners entitled to receive these fees as possible against the burden imposed on the services to provide
the needed information and the need for a period of time during which licensees will
become accustomed to reporting actual performance data. The ultimate goal remains
a final regulation requiring year-round reporting.
Meanwhile, the interim rules require the licensees to report only a relatively
minimal amount of specific information needed to identify and differentiate sound
recordings from one another. In addition to its own name and the category of transmission (e.g., eligible nonsubscription transmission other than a broadcast simulcast, or eligible nonsubscription transmission of a broadcast simulcast, or eligible
transmission by a business establishment service making ephemeral recordings), a
licensee is currently required to report as few as four key items for each sound recording performed: sound recording title; featured recording artist, group or orchestra; sound recording identification; 39 and total number of performances.40 They do
38 See 63 Fed. Reg. 34296 (June 24 1998).
39 The sound recording identification may consist of either the International Standard Recording Code (ISRC) for the particular recording or, in lieu of the ISRC, the album title and the
marketing label of the company that markets the album which contains the sound recording.
40 Total performances may be reported either by reporting the actual number of times a sound
recording was performed by the licensee multiplied by the number of recipients; or by reporting
the total number of times the sound recording was performed as well as the licensees aggregate
Continued

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00021

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

18
not require the licensee to report other information sought by the record industry,
such as the catalog number, the track label (P) line, the duration of the sound recording, the universal product code, or the release year. Nor are the licensees required to report specific information that would aid the copyright owners in assessing compliance with the programming restrictions, e.g., the start date and time of
the transmission of the sound recording. Moreover, the rules do not require a full
census report at this time, although they do require licensees to maintain precise
records for two weeks out of every quarter.
The rulemaking is ongoing. The Office is still considering rules that would establish specific electronic formats for transmitting this information. The format issue
has proven difficult. One might have imagined that although there would be differences of opinion over what kind of information must be reported, the interested
parties would be able to work out the technical issues involving the electronic formats in which the reports of use would be made. SoundExchange has been working
on its own system for maintaining the data that will be reported to it on sound recording performances, and many broadcasters and webcasters have their own electronic systems that already report information on their performances. We had anticipated that SoundExchange could sit down with broadcasters and webcasters to
work out the details of how these systems can communicate with each other, but
thus far very little progress has been made despite our encouragement and urging.41
We at the Copyright Office have no familiarity with or expertise about the electronic
systems maintained by SoundExchange, broadcasters and webcasters, but the interested parties appear to have decided to leave it to us to prescribe the technical rules
on the formatting of reports of use of sound recordings, specifying precise fields and
delimiters for reporting the required information. We remain hopeful that the parties may come to an agreementand we strongly urge them to do sobut meanwhile, we are considering a recent submission from RIAA that proposes revised
specifications for filing electronic reports of the performance data and has been forwarded to DiMA for consideration. We hope to publish a notice of proposed rulemaking on formatting requirements this summer, and we are optimistic that we can
conclude that phase of the rulemaking proceeding by the end of this year.
We are also near to concluding the portion of the proceeding concerning reports
of use for the historic period. On Tuesday, we published a Notice of Proposed Rulemaking concerning reporting requirements for use of sound recordings during the
period prior to April 1, 2004. The notice proposes use of data already provided by
the preexisting subscription services to SoundExchange for the relevant period as
a proxy for the reporting of actual performances made by all other services during
the same time period. This approach had been suggested in our Notice of Inquiry,42
and has been endorsed by the copyright owners and performers as well as the affected licensees. Both groups have acknowledged that little useful data exists at this
point in time and that there is no apparent way to reconstruct the information needed to file reports of actual use. Consequently, copyright owners, performers and licenses advocate the use of a proxy to account for the historic performances.
Use of a proxy, however, is an imperfect solution, since it is likely to undercount
some performances and over-count others. Nevertheless, it has many advantages.
First, the data from the preexisting services for the historic period offers accurate
reporting for programming that is by and large comparable to what was offered by
the nonsubscription services during the same time period. Second, the preexisting
subscription services had transmitted a diverse number of sound recordings so that
a large number of copyright owners and performers can be compensated. And finally, the data has already been used by SoundExchange for distribution of royalties
received from the preexisting subscription services and can easily be used for distribution of the royalties received from the nonsubscription services for the corresponding time period.
For these reasons, we believe the use of the reports of the preexisting subscription
services as a proxy represents the simplest, most practical and cost-effective solution, and that the affected parties will continue to embrace this solution. Interested
parties have thirty days to file comments either in support of this solution or offering alternative proposals.
tuning hoursi.e., the total number of listener hours by all who have accessed the service during a given period of time.
41 The Office encourages copyright owners, broadcasters and webcasters to work together to
agree on formatting requirements that will serve all of their needs, and to submit joint proposals
or comments if possible. 67 Fed. Reg. at 59576 (Sept. 23, 2002).
42 68 Fed. Reg. 58054 (Oct. 8, 2003).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00022

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

19
d. Conditions for use of the statutory license.
It is our understanding that, now that the question of whether their Internet
transmissions are exempt from the performance right has been resolved against
them, broadcasters are questioning whether certain terms in the statutory license
should apply to simulcasts of AM/FM programming when retransmitted over the
Internet. Specifically, broadcasters have focused on those provisions that prohibit a
service from announcing its play schedule in advance and the requirement that a
service not play more than a limited number of selections from a particular record
album or by a particular recording artist within a 3-hour period (the sound recording performance complement). These restrictions, among others, were adopted in
1995 to inhibit copying of music by consumers who could make near-perfect digital
copies of a sound recording. The reasons behind the restrictions are simple to understand. They were adopted to make it difficult for an individual to identify in advance, and thereby copy, specific works, thus avoiding the expense of purchasing a
copy of the work.
The need for such restrictions, however, may be less obvious when one considers
a typical radio program offering Top-40 selections. Many radio stations routinely
play the same selections over and over so that one need wait only a short time before the most recent release of a hit song is played over the airwaves. Consequently,
preannounced schedules of these programs may do little to prevent a listener from
copying the newest hits. Thus, it is unclear whether the restriction has much value
with respect to these types of radio programs. On the other hand, it is hard to understand how the term creates a hardship for broadcasters who simulcast over the
Internet today or to understand the need for such preannounced schedules, since
most listeners would not consult a program guide before listening to AM/FM radio
anyway. The typical practice is to flip on the radio and surf the channels to see
what is playing at the moment or to tune in to a favorite talk show at the regularly
scheduled time. Thus, until more information comes to light, it is hard to understand what harm the broadcasters suffer today under the preannouncement restriction, or why there is a need to eliminate this term with respect to broadcast programming.
Similarly, it is hard to understand the broadcasters complaint with respect to the
sound recording performance complement restriction since the definition was crafted
so that it would permit programming that was typically used by broadcast radio stations. Specifically, the legislative history notes that [t]he definition [of the complement] is intended to encompass certain typical programming practices such as
those used on broadcast radio. 43 Whatever confusion does exist with respect to the
application of this provision may well stem from a misunderstanding of what the
complement does and does not allow. For example, it would not prohibit a service
from playing the same three songs from a single phonorecord as many times as it
wanted during a 3-hour period, provided that no more than two of these songs were
played consecutively. The sound recording performance complement would similarly
allow a service to play up to four different songs by the same featured recording
artist or four different songs from any particular boxed set of phonorecords over and
over again during a 3-hour period provided that no more than three of these songs
were transmitted consecutively. Since these provisions seem to accommodate normal
scheduling practices, it is hard to see how the sound recording performance complement imposes a burden on a typical AM/FM broadcast station.
Certainly, should these restrictions be shown to pose a substantial burden on programming practices that outweigh whatever protection they provide, then Congress
should take another look at their application to broadcast programming being retransmitted over the Internet. In fact, that day may well be near at hand, because
new technologies and software that allow a consumer to capture and edit programming transmitted via the Internet already threaten their effectiveness.
DIGITAL AUDIO BROADCASTINGDOES IT POSE A THREAT TO COPYRIGHT OWNERS?

Digital audio broadcasting, also known as HD radio, is no longer a vision of the

future. Technology to facilitate digital audio broadcasts has already been approved
by the Federal Communications Commission (FCC). In 2002, the FCC adopted the
in-band on-channel system developed by iBiquity Digital Corporation as the standard technology for enabling digital broadcasts by AM and FM radio stations that
wished to begin digital transmissions over the airwaves immediately.44
43 S.

Rep. No. 104128, at 34 (1995).

Audio Broadcasting Systems and Their Impact on the Terrestrial Radio Broadcast
Service, 17 FCC Rcd 19990 (2002).
44 Digital

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00023

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

20
Although radio stations did not immediately embrace the new technology, they
are doing so now. In January of this year, KZIA in Cedar Rapids, Iowa, began the
movement when it announced its intent to become the first station to offer HD
radio.45 Less than five months later, iBiquity issued another press release, announcing that radio station KEMR-FM in San Jose, California, had become the 100th
radio station to launch HD radio broadcasts.46 It also has compiled a list of more
than 300 licensed radio stations that have begun offering HD radio or will begin
to do so soon.47
The electronics industry has also been hard at work. Companies are manufacturing and marketing digital radio receivers for those who wish to be among the
first to receive clear, digital radio signals over the airwaves. But technologists have
not stopped there. Companies are also busy designing and manufacturing new products to capture and record these signals and anticipate the release of a number of
new products which will allow a consumer to record digital audio radio signals so
that a listener can listen to his or her favorite radio talk show, news show or music
program at a later time. In some instances, these products will operate in the same
manner as a VCR or a TiVo device, allowing the listener to fast-forward over the
segments that one prefers not to hear.48 In fact, some early digital radio recorders,
e.g., Blaze Audios Radio Recording Suite,49 already include functions that allow the
listener to program the device to record a program at specified times, convert an
analog signal into a digital format, and upload the recorded program onto a personal
computer in a transferable file.
In spite of these features, the early release of these devices did not disturb the
copyright community because radio programming was not being offered in a digital
format at the source. Consequently, programs that were transmitted in an analog
format and later converted to a digital format were only as good as the original analog signal. In many cases, recordings of these signals were plagued by static, fades,
and hisses.
The advent of digital audio broadcasting (DAB) and advances in the recording
devices, however, will greatly improve audio quality, removing the flaws associated
with analog broadcasts. Moreover, these devices and software packages will allow
the listener to change the traditional passive listening experience into an interactive
process. They will give the recipient the means to edit and store specific segments
and songs from a prerecorded program, upload these selections onto the recipients
personal computer, and allow for further distribution of these segments to others
via electronic transfers over the Internet or by other means.
On-Demand Audio expects to offer a digital radio recorder this fall that will provide these functions.50 It promises not only to capture and record the digital radio
signal, but also to include technology which will allow the listener to skip from songto-song and skip over advertisements. Moreover, according to its promotional material, its SongSurfer Technology will be able to identify specific segments of a radio
program or a song, and bookmark each segment for identification and use at a later
time. The product will also include a Jukebox Mode which will allow the user to
save songs, interesting ads, and talk radio segments to a built-in Jukebox. . . .
Saved songs can then be sorted into playlists either when they are saved or later. 51
Similar technology is available to capture online music over the Internet. Replay
Music promotes its ability to save every song played by an on-line music service,
automatically tag each song with the artist name and song title, and separate the
song into individual tracks for easy access and play-back. The company claims that
its Replay Music sports the most sophisticated track splitting algorithms on the
planet. Besides just recording and tagging, each MP3 file contains the entire song
no more, no less. 52
45 IOWAFirst in the Nation for HD Radio, The Hollywood Reporter.com (January 2, 2004)
located at http://www.ibiquity.com/press/pr/010204.htm.
46 HD Radio Going Live Coast-to-Coast . . . and Beyond (April 19, 2004) at http://
ibiquity.com/press/pr/041904Coast2Coast.htm.
47 iBiquity has established a website, www.HD-Radio.com, where visitors can find information
about stations across the United States that are either offering HD radio now or intend to do
so in the near future.
48 See Elisa Batista, A TiVo Player for the Radio, Wired News (May 12, 2003), at http://
www.wired.com/news/technology/0,1282,58769,00.html.
49 http://www.blazeaudio.com/products/radiorecordersoftpack.html.
50 See
also Neuros HD 20GB MP3 Digital Audio Computer located at: http://
www.neurosaudio.com/ store/ product.asp?catalog%5Fname= Digital Innovations Catalog &
category%55Fname= Neuros+Players&product%5Fid=401020.
51 On-Demand Radio Overview at http://www.gotuitcom/audio/agradio.html. See also http:/
/www.gotuit.com/audio/aConsumer.html.
52 Replay Music at http://www.replay-music.com/.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00024

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

21
These technological advances threaten to disrupt the careful balance Congress
struck between the record industry, on the one hand, and the purveyors of new digital technologies, on the other, in the DPRA and the DMCA. Moreover, widespread
use of these products would alter the longstanding relationship between record companies and radio broadcasters in which record companies have provided radio stations with the latest releases at no cost in exchange for promotional airplay, a relationship based on record companies expectation that consumers would purchase
new CDs based upon what they heard over the airwaves. But today listeners are
not limited to what they hear on the radio to inform their choices, nor do they necessarily purchase CDs containing the songs they like. Instead, new technologies,
e.g., peer-to-peer services, offer free access to music and a means to obtain free copies of the works they enjoy. In this new environment, record companies cannot necessarily have any expectation of financial reward because consumers find ways to
obtain copies of their works for free. Nevertheless, radio broadcasters who use music
as a hook to get listeners and, by extension, advertising dollars, as well as the makers of the software packages that facilitate the free exchange of music over the
Internet profit directly from their use of sound recordings.
Clearly, the threat posed by todays new technologies is most ominous for the performers, the record companies and authorized on-line record stores, like iTunes and
MusicMatch, whose profits depend, at least to some extent, directly upon sales of
CDs or digital downloads; but the potential harm is not restricted to these businesses. Broadcasters and subscription services will suffer, too, from the use of technologies that can capture, record, and preserve individual sound recordings, and the
more valuable segments of a radio stations program. Subscription services will find
it hard to sell reproductions of a sound recording to listeners through use of a buy
button, when these listeners can capture the songs they want and upload them directly to their personal computers with the use of a On-Demand Audio device or Replay Music software. Why would anyone pay for a reproduction of a sound recording
when they can create their own private music collection without expending a dime
for the reproduction? Broadcasters could also suffer from extensive use of these new
technologies, albeit in a more indirect fashion. In the event that the TiVo type devices become popular, listeners will simply avoid the ads, making it ineffective for
businesses to advertise on radio. Were this to occur, businesses will seek better
ways to reach consumers, and advertising dollars will no longer flow to the broadcasters.
The answer, however, is not to inhibit the roll out of HD radio; nor is anyone suggesting a slowdown on this front. HD radio promises to deliver a high-quality audio
product that should draw consumers back to the airwaves. The more promising approach would be to grant copyright owners of the sound recording a full performance
right so that they can seek marketplace solutions to the problem, perhaps by negotiating licenses for performance rights that would include measures to protect against
the types of activities that would make record sales obsolete. At the moment, sound
recording copyright owners have no means to prevent a broadcaster from broadcasting their works over the airwaves or to compel protection of their work. Alternatively, Congress may want to consider technological methods to prohibit unlawful
copying, an approach the Federal Communications Commission has already begun
to explore. On April 20, 2004, it published a Notice of Inquiry to consider the question of digital audio content control in response to concerns presented to the it by
the Recording Industry Association of America.
While we take no position on the FCCs recent action, it is apparent that digital
audio broadcasting raises many of the same concerns and fears voiced by the record
industry when digital technologies first made their appearance in the nineties, and
these concerns are even more valid today. How the issues should be addressed, however, remains an open question. But what is clear is that the process must include
a careful analysis of copyright policies. Moreover, any solutions adopted must provide strong incentives to the creators to continue their artistic endeavors and equally strong incentives to encourage the continued development of new technological
advances. In the absence of corrective action, the rollout of digital radio and the
technological devices that promise to enable consumers to gain free access at will
to any and all the music they want will pose an unacceptable risk to the survival
of what has been a thriving music industry and to the ability of performers and
composers to make a living by creating the works the broadcasters, webcasters and
consumer electronic companies are so eager to exploit because such exploitation puts
money in their pockets.
Mr. Chairman, as always, we at the Copyright Office stand ready to assist you
as the Committee considers how to address the new challenges that are the subject
of this hearing.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00025

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

22
Mr. SMITH. Mr. Halyburton.
TESTIMONY OF DAN HALYBURTON, SENIOR VICE PRESIDENT/
GENERAL MANAGER, GROUP OPERATIONS, SUSQUEHANNA
RADIO CORPORATION, ON BEHALF OF THE NATIONAL ASSOCIATION OF BROADCASTERS

Mr. HALYBURTON. Thank you, Mr. Chairman, Ranking Member

Berman, and Members of the Subcommittee.
When Congress enacted section 405 of the DMCA, it clearly
sought to foster Internet streaming while preserving the longstanding, mutually beneficial relationship between radio and the
recording industry. Unfortunately, the potentials of this technology
have not been realized.
In April 2000, there were more than 1,700 U.S. Radio stations
streaming their programming via the Internet. Industry estimates
predicted that each month 100 stations would add streaming services. Today, those bright expectations have not materialized. By the
end of 2002, well over 1,000 stations had discontinued streaming
due in large part to copyright issues.
My company, Susquehanna Radio, helped pioneer radio Internet
delivery, and 23 of our stations are still trying to make a go of it.
However, the DMCA has made it impossible to create a viable business model for simulcast streaming. In fact, it is a recipe for losing
money, which is exactly what we are doing.
Here are the problems we face. First and foremost, we are subject to a rate structure under which the more audience we attract,
the more we pay. The result is that once we draw enough audience
to attract advertisers, the RIAA fee becomes so expensive we lose
money.
Not only must we pay for the right to perform sound recordings,
but we also have to pay for so-called ephemeral copies that are
technically necessary to stream but have no independent economic
value.
Third, the statutory conditions interfere with our programming.
DJs cannot preannounce records, and we are limited to the number
of cuts we can play of one artist or from a single album. And there
is a concern that the complex and expensive recordkeeping requirements may be adopted. No wonder most stations looked at this
scheme and said, No thanks.
So let me suggest five steps Congress should take to fix the law
so that Internet radio streaming can mature into a workable business model and serve our listeners.
First, Congress should exempt from sound recording fees streams
to a stations local over-the-air audience. It simply makes no sense
to treat this audience differently when they listen to our signal on
the Internet; the same local public service benefits are provided.
Moreover, the recording industry cannot deny the enormous promotional benefit that it gets from radio air play, by far the most
important driver of record sales. This same benefit exists when a
station streams its programming over the Internet to its local audience.
Second, the sound recording performance fee and the standard by
which it is set must be reformed. The willing buyer-willing seller
standard and the DMCA is a recipe for abuse. Before the CARP

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00026

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

23
proceeding, RIAA set out to negotiate 26 agreements at fees far
above the competitive market rate for the purpose of establishing
an artificially high benchmark in order to influence the CARP. The
CARP threw out 25 of those agreements, but still relied entirely on
a single agreement between the RIAA and Yahoo to arrive at the
current rate, and that rate is exorbitant.
Susquehanna will pay RIAA six times what we pay ASCAP, BMI
and SESAC combined for those same exact performances. Just one
of our stations, KPLX in Dallas, will pay almost $50,000 in fees in
a year to reach a small fraction of its over-the-air audience. Congress should establish a fee comparable to what is paid to BMI,
ASCAP, and SESAC.
Third, Congress must reform the statutory license conditions and
make them consistent with broadcast practices. Radio stations
should not be forced to choose between either radically altering
their over-the-air programming practice or risk uncertain and costly copyright infringement litigation.
Fourth, Congress should eliminate additional copyright liabilities
for ephemeral recordings that simply exist to facilitate a licensed
or an exempt performance.
And fifth, Congress should ensure that the reporting and recordkeeping requirements in the act do not preclude broadcasters from
streaming.
Mr. Chairman, coupling the powers of the Internet with the longstanding strengths of free, over-the-air radio promises exciting opportunities for our listeners, your constituents. Let me thank the
Subcommittee for its leadership and hard work in moving forward
legislation to reform the CARP system. Unfortunately even if the
CARP process is fixed, the law will continue to stifle the growth of
radio streaming.
We look forward to working with the Subcommittee to repair the
law and create a workable copyright regime that allows fledgling
service to flourish rather than suffocate.
Mr. SMITH. Thank you, Mr. Halyburton.
[The prepared statement of Mr. Halyburton follows:]
PREPARED STATEMENT

OF

DAN HALYBURTON

Chairman Smith and Members of the Subcommittee. My name is Dan

Halyburton. I am the Senior Vice President and General Manager for Group Operations for Susquehanna Radio Corp., which owns 32 broadcast radio stations.
I appreciate the opportunity to appear before you today on behalf of the National
Association of Broadcasters to discuss a matter of importance to the radio industry
and to the many members of the public who want to hear their favorite radio station
over the Internet on their home or office computers but who have been frustrated
by what has become, through various judicial and administrative actions, a burdensome and unworkable law.
In 1998, Congress enacted section 405 of the Digital Millennium Copyright Act
with the goal of fostering the growth of Internet streaming while preserving the
longstanding, mutually beneficial relationship between the radio and recording industries. The Internet offered an opportunity for all types of radio stations throughout the country, small and large, urban and rural, to reach their audiences in a
new, more convenient and more creative way, coupled with information, graphics,
and other material that can be placed on a web site.
Unfortunately, that goal has been thwarted. A medium that was once thought to
have a bright future to enhance the ability of radio stations to serve the public is
vastly underused. As you may have noticed, relatively few radio stations now
stream their programming on the Internet. In 2000, more than 1,700 radio stations
were streaming their programming and nearly 100 additional stations were ex-

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00027

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

24
pected to commence streaming each month. By the end of 2002, however, well over
1,000 stations had stopped streaming and those stations that now come online overwhelmingly are all talk stations.
There are a number of reasons for this, but the biggest part of the problem lies
with the rules governing sound recordings. Specifically:
The fee set by the copyright royalty arbitration panel and the Librarian of
Congress in 2002 was much too high, and far exceeds a reasonable or even
a hypothetical competitive fair market rate. As an example, if the Internet
listenership of one of our most popular stations ever matched its over-the-air
listenership, the sound recording fees would be 15 millions dollars a year.
Even at todays listenership levels, our stations pay 5 to 6 times as much for
sound recording royalties than we pay to the musical works copyright owners
for the right to make the same Internet performances of all of the musical
works embodied in the sound recordings.
The applicable statutory performance license is subject to a host of conditions
that are inconsistent with the way radio stations program their stations.
Radio stations are faced with the untenable choice of making fundamental
changes to their programming, not streaming, or incurring the risk of having
to defend uncertain and hugely expensive and complex copyright infringement
litigation.
The law governing the making of copies that are used solely to facilitate permitted transmissions unreasonably requires the payment of still additional
fees and is subject to conditions crafted in the earlier days of radio that fail
to accommodate modern technological practices and realities.
The Copyright Office has raised the specter of onerous and unnecessary
record keeping and reporting requirements in the near future. Many radio
stations, particularly smaller stations, simply will not be able to comply using
their existing systems and business practices. The threat of these requirements keeps many from even considering streaming.
Mr. Chairman, I know you are concerned about the failure of this new opportunity
for radio to serve the public to develop. You have already moved to address the
problems associated with the CARP (arbitration panel) procedure that the DMCA
put in place to set fees, and we greatly appreciate your leadership and efforts. We
strongly support HR1417 and hope that the Senate will pass it promptly and that
it will become law.
Unfortunately, the CARP procedure is a relatively small part of the difficulties
current law and regulations pose for streaming radio stations. There are major substantive problems with rights afforded to the copyright owners of sound recordings
in sections 114 and 112 of the Copyright Act. These must be addressed if Internet
streaming of radio stations is to fulfill its promise.
I would first like to provide some history of the sound recording performance
right, to review how we got here. Then I will describe the current state of radio stations simultaneously streaming their over the air signals on the Internet (simulcast
streaming). Finally, and most importantly, I will offer specific suggestions to fix the
problems that are preventing simulcast streaming from happening.
I. HOW WE GOT HERETHE HISTORY OF THE SOUND RECORDING PERFORMANCE RIGHT

Until 1995 there was no performance right in sound recordings. Instead, radio
stations paid well over a hundred million dollars annually to music composers and
publishers while the producers and performers of sound recordings made billions of
dollars from the sales of records promoted by radio airplay.
In 1995, Congress first created a carefully and narrowly circumscribed performance right in digital audio transmissions to address the specific concerns of record
companies that certain interactive and multi-channel, genre-specific subscription
performances would displace record sales. In 1998, in response to issues concerning
the status of Internet-only webcasts, the right was expanded to include certain nonsubscription transmissions. In our view these rights were never intended to apply
to radio broadcasters.
Congress has, for decades, recognized the symbiotic relationship between the recording and radio industries, first refusing to grant a public performance right in
sound recordings, and then granting it narrowly only in response to a specific
threat. Even then, Congress provided that nonsubscription broadcast transmissions
would remain free from any sound recording performance obligation. Although
broadcasters believe that Congress intended this exemption to include the Internet
streaming of radio broadcasts, the Copyright Office and the Courts ruled otherwise.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00028

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

25
It is not at all clear why radio stations should be required to pay record companies for the right to stream their radio broadcasts over the Internet. After all, the
recording industry has for decades tried, using every device imaginable and spending millions upon millions of dollars annually, to encourage broadcasters to play
their records in these very same broadcasts. Why? Simply because radio play is, far
and away, the most important vehicle for exposing to the public the products of the
record industry. Consumers buy what they hear, and what DJs they trust play.
Arbitron studies have proven as muchfully two thirds of those polled said they
turn to radio first to learn about new music.1 A radio broadcast has the same extraordinary promotional value to the record companies whether it is heard over the
air or over the Internet. In a truly free, competitive market, the net balance of payments would flow from record companies to radio stations, not vice-versa, just as
free copies of their recordings still flow every day from the record companies to radio
stations.
A. Pre-1995
Throughout the history of the debate over sound recording copyrights, Congress
has consistently recognized that record companies reap huge promotional benefits
from the exposure given their recordings by radio stations and that placing burdensome restrictions on performances could alter that relationship to the detriment of
both industries. For that reason, in the 1920s and for five decades following, Congress regularly considered proposals to grant copyright rights in sound recordings
but repeatedly rejected such proposals.
When Congress did first afford limited copyright protection to sound recordings
in 1971, it prohibited only unauthorized reproduction and distribution of records but
did not create a sound recording performance right. The purpose of such protection
was to address the potential threat such reproductions posed to the industrys core
business: the sale of records. During the comprehensive revision of the Copyright
Act in 1976, Congress again considered, and rejected, granting a sound recording
performance right. As certain senators on the Judiciary Committee recognized in
their (prevailing) minority views:
For years, record companies have gratuitously provided records to stations in
hope of securing exposure by repeated play over the air. The financial success
of recording companies and artists who contract with these companies is directly related to the volume of record sales, which, in turn, depends in great
measure upon the promotion efforts of broadcasters.2
Congress continued to refuse to provide any sound recording performance right for
another twenty years. During that time, the record industry thrived, due in large
measure to the promotional value of radio performances of their records.
B. 1995
It was not until the Digital Performance Rights in Sound Recordings Act of 1995
(the DPRA)enacted less than ten years agothat even a limited performance
right in sound recordings was granted. Even then, the right was limited to certain
subscription and interactive digital transmissions that threatened to displace the
sale of recordings.
In granting this limited public performance right in sound recordings, Congress
stated it: should do nothing to change or jeopardize the mutually beneficial economic relationship between the recording and traditional broadcasting industries. 3
As explained in the Senate Report accompanying the DPRA, The underlying rationale for creation of this limited right is grounded in the way the market for
prerecorded music has developed, and the potential impact on that market posed by
subscription and interactive servicesbut not by broadcasting and related transmissions. 4
Consistent with Congresss intent, the DPRA expressly exempted from sound recording performance right liability non-subscription, non-interactive transmissions,
1 See, e.g., Internet 9: The Media and Entertainment World of Online Consumers, Special
Radio Industry Edition, available at http://www.arbitron.com/downloads/I9NAB.pdf (viewed June
8, 2004).
2 S. Rep. No. 93983, at 22526 (1974) (minority views of Messrs. Eastland, Ervin, Burdick,
Hruska, Thurmond, and Gurney).
3 S. Rep. No. 104128, at 15 (1995 Senate Report); accord, id. at 13 (Congress sought to ensure that extensions of copyright protection in favor of the recording industry did not upset[]
the long-standing business relationships among record producers and performers, music composers and publishers and broadcasters that have served all of these industries well for decades.).
4 Id. at 17.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00029

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

26
including non-subscription broadcast transmission[s]transmissions made by FCC
licensed radio broadcasters.5 Congress made clear that the purpose of this broadcast
exemption was to preserve the historical, mutually beneficial relationship between
record companies and radio stations:
The Committee, in reviewing the record before it and the goals of this legislation, recognizes that the sale of many sound recordings and careers of many
performers have benefited considerably from airplay and other promotional activities provided by both noncommercial and advertiser-supported, free over-theair broadcasting. The Committee also recognizes that the radio industry has
grown and prospered with the availability and use of prerecorded music. This
legislation should do nothing to change or jeopardize the mutually beneficial
economic relationship between the recording and traditional broadcasting industries.6
The Senate Report confirmed that [i]t is the Committees intent to provide copyright holders of sound recordings with the ability to control the distribution of their
product by digital transmissions, without hampering the arrival of new technologies,
and without imposing new and unreasonable burdens on radio and television broadcasters, which often promote, and appear to pose no threat to, the distribution of
sound recordings. 7
In explaining its refusal to impose new burdens on FCC-licensed terrestrial radio
broadcasters, Congress identified numerous features of radio programming that
place such programming beyond the concerns that animated the creation of the limited public performance right in sound recordings. Specifically, radio programs (1)
are available without subscription; (2) do not rely upon interactive delivery; (3) provide a mix of entertainment and non-entertainment programming and other public
interest activities to local communities to fulfill FCC licensing conditions 8; (4) promote, rather than replace, record sales; and (5) do not constitute multichannel offerings of various music formats. 9 Each of these featuresi.e., nonsubscription,
non-interactive, mixed programming content and public interest content, promotion
of record sales, and single-channelalso characterizes the web stream of a broadcast signal.
C. 1998
Just three years after enactment of the DPRA, the record industry voiced dissatisfaction with the scope of the new performance right, contending that such right
should encompass certain categories of nonsubscription music services. At the same
time, the Digital Media Association (DiMA), a newly formed association of Internet-only webcasters, approached Congress seeking clarification of the status of
such webcasters with respect to sound recording performances on the Internet.
DiMA and RIAA, neither of which represented the interests of FCC-licensed broadcasters, negotiated amendments to the DPRA, that were put into the House version
of the Digital Millennium Copyright Act of 1998 (DMCA) literally on the eve of
passage, and that were enacted without any hearing or debate.10 For their part,
5 17 U.S.C. 114(d)(1)(A). All statutory citations are to the Copyright Act, Title 17 of the
United States Code, unless otherwise noted.
6 1995 Senate Report, at 15.
7 Id.
8 Radio broadcast stations are subject to numerous public interest requirements in order to
obtain and maintain their FCC licensesrequirements that do not apply to Internet-only
webcasters. See 47 U.S.C. 307, 30910 (1998). These requirements apply to the content of licensed stations broadcasts and to their operations and record-keeping procedures. See, e.g., 47
C.F.R. 73.3526(e)(12) (requiring a quarterly report listing the stations programs providing significant treatment of community issues); 47 U.S.C. 315(a) (requiring a station to offer equal
opportunity to all candidates for a public office to present views, if station afforded an opportunity to one such candidate); 47 C.F.R. 73.1212 (requiring identification of program sponsors);
id. 73.1216 (providing disclosure requirements for contests conducted by a station); id.
73.3526 (requiring maintenance of a file available for public inspection); id. 1211 (regulating
stations broadcast of lottery information and advertisements).
9 1995 Senate Report, at 15.
10 See, e.g., Jane C. Ginsburg, Copyright Legislation for the Digital Millennium, 137 Colum.VLA J.L. & Arts 137, 16668 (1999) (noting that the Section 114 amendments regarding digital
performance right in sound recordings were a last minute addition to the DMCA resulting
from negotiations between copyright owners and digital transmission services); Bob Kohn, A
Primer on the Law of Webcasting and Digital Music Delivery, 20 Ent. L. Rep. 4 (Sept. 1998)
(describing the version of the amendments to Section 114(d) passed by the House, as being negotiated and drafted by DiMA and RIAA, at the suggestion of the Register of Copyrights,
days, and perhaps hours prior to passage).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00030

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

27
broadcasters were assured by both parties and others that none of the DMCA would
affect the exempt status they enjoyed under the DPRA.
The RIAA/DiMA deal removed certain exemptions that had previously been available under the DPRA, including the exemption for a [digital] nonsubscription transmission other than a retransmission and expanded the types of transmissions that
would be eligible for a statutory license to include at least some of the previously
exempt nonsubscription, non-interactive transmissions.11
The relevant DMCA amendments were inspired by and directed to a remarkable
proliferation of music services offering digital transmissions of sound recordings to
the public, primarily via the Internet.12 In particular, the House Manager reported, services commonly known as webcasters have begun offering the public
multiple highly-themed genre channels of sound recordings on a nonsubscription
basis. 13 As used in the legislative history, the term webcaster referred, not to
radio stations streaming their AM/FM over-the-air broadcast programming, but to
services originating on the Internet 14 and offering a diverse range of programming, often customized to an individual users preferences.15
The DMCA, however, did nothing to disturb the DPRAs exemption for nonsubscription broadcast transmissions or the definitions that accompanied the exemption. Indeed, AM/FM streaming is a conspicuously poor fit with the webcasting
services described in the DMCA legislative historyand AM/FM streaming presents
none of the webcasting-related concerns that motivated passage of the DMCA.
Moreover, as I will discuss in greater detail below, the RIAA/DiMA deal that was
enacted in the DMCA imposed new conditions on the statutory license for non-subscription services that were inconsistent with the way radio stations are traditionally programmed. Thus, DiMA and RIAA agreed to waive the conditions for third
party webcasters that retransmitted a radio broadcast. However, the waivers did
not apply to broadcasters transmitting their own programming. In other words, once
the sound recording right was construed to apply to radio broadcasters, those broadcasters were placed at a significant disadvantage compared to third party retransmitters of radio broadcasts.
Broadcasters believed, and still believe, that Congress intended radio broadcasters
streaming their own programming to be exempt under the DMCA, and broadcasters
vigorously, but unsuccessfully, pressed that position before the Copyright Office in
a rulemaking 16 and on appeal in federal court in Bonneville International Corp. v.
Peters.17
Broadcasters still believe that the Bonneville decision was wrongly decided and
that the last thing Congress intended was to pass a law that required record companies and radio stations to haggle over what can be played, how often, who should
pay whom what, and the records broadcasters must keep of what they play. Yet that
is precisely the deeply-flawed system we are today confronting. That system must
be repaired, even starting from the premise that some portion of radio broadcast
streaming should be subject to the sound recording performance right.
II. THE UNFULFILLED PROMISE OF SIMULCASTING RADIO OVER THE INTERNET

In April, 2000 the radio industry believed that simulcast streaming was not subject to the sound recording performance right, and therefore was not subject to the
fees and conditions imposed by the statutory license contained in Sections 112 and
114 of the Copyright Act. By industry estimates, there were more than 1,700 U.S.
radio stations streaming their programming via the Internet.18 Nearly one hundred
11 See, e.g., 17 U.S.C. 114(d)(2) (1998).
12 Staff of House Comm. on the Judiciary, 105th Cong., Section-by-Section Analysis of H.R.
2281 as passed by the United States House of Representatives on August 4, 1998, at 50 (Comm.
Print 1998) (hereinafter, 1998 House Managers Report).
13 Id.
14 See e.g., id. at 51 (discussing low barrier to entry for Internet-based webcast services, which
can be started by an individual with one computer in his or her home).
15 See id. at 50 (Many webcasters also offer certain types of programming, such as archived
and continuous programming, that permit listeners to hear the same recordings repeatedly and
anytime the listener chooses.); id. (Most significantly, the Internet enables a music service to
interact with its listeners so that listeners have the ability to hear their favorite music whenever they wish, select certain sound recordings or programs, skip to the recordings of their
choice, and to create personalized channels that are customized to their specific tastes.).
16 Copyright Office, Public Performance of Sound Recordings: Definition of a Service, Final
Rule, 65 Fed.Reg. 77292 (Dec. 11, 2000).
17 347 F.3d 485 (3d Cir. 2003).
18 See BRS Media Inc., Web Radio Stats, www.brsradio.com/iradio/ analysis.html (viewed
April 16, 2000).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00031

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

28
(100) radio stations were expected to begin broadcasting over the Internet each
month.19
These bright expectations have not materialized. By the end of 2002, well over
1,000 U.S. radio stations had stopped streaming their signal on the air due to copyright issues.20 The stations to come on line since that time are overwhelmingly
news/talk/sports stations that are not hamstrung by the sound recording statutory
license. In Texas, for example, only 130 of the more than 900 licensed radio stations
simulcast their streams, and more than half of those are news, talk, or sports formats, according to radio-locator.com. In Wisconsin the numbers are even more disappointing. Only 41 of the approximately 337 radio stations reportedly stream their
signals. Only nine of those are music-intensive commercial stations; the rest are either public radio (which operates under a separate, confidential fee structure) or
talk.
The nations largest radio group, Clear Channel, for example, owns more than
1,000 radio stations, but only 180 of them are simulcast streaming today, and most
of those are news/talk stations rather than music stations. After the CARP sound
recording fee rates were announced, Clear Channel shut down most of its streaming,
and has only slowly brought back a few stations over the past few years, focusing
on news or talk stations that do not run up large license fees. The only music stations Clear Channel currently streams are in its smaller markets, where
listenership will not be so large that the license fees will eat up the stations entire
marketing budget. Our colleagues at Emmis Communications have taken a similar
approach. Emmis currently streams four out of its five (80%) of its news/talk stations, but only eighteen percent (4 out of 22) of its music stations. At Entercom, they
have given up on streaming altogether for their 100 radio stations, halting all
streaming almost two years ago, in the face of the substantial fee burdens and the
additional requirements of the statutory license.
Smaller group owned radio is faring even more poorly. Between the fees, the need
to change business practices that I will discuss, and the threatened reporting burden, very, very few smaller group owned music stations are streaming.
At Susquehanna, we are still trying to make a go of it, streaming the programming of every station we operate. We were one of the very first broadcasters to simulcast our over the air broadcasts. Way back in 1995a lifetime ago, in Internet
timeour Dallas news/talk station became one of the first radio stations streamed
by a little unknown outfit called AudioNet, which became Broadcast.com, and ultimately Yahoo!Broadcast.
Despite our long involvement with simulcast streaming and our successful broadcast business, we have still not found a viable business model for simulcast streaming. Susquehanna has never made a dime on streaming; in fact our stations consistently lose money on streaming. The sound recording performance fees are simply
too highright now, license fees are by far the single largest expense of our streaming budget, and the vast majority of those license fees are for the sound recording
right. In fact, we are today paying between 5 and 6 times more for the sound recording rights than we pay to the musical works copyright owners for the right to make
the same Internet performances of all of the musical works embodied in the sound
recordings. Moreover, the musical works licenses are broader and do not contain the
limitations and conditions included in the sound recording statutory license.
We, like most broadcasters, stream in order to provide our local listeners with an
alternative means of hearing our station. There are places radio waves do not easily
reach, particularly inside of buildings. Studies consistently show that about as many
people listen to the handful of stations within their local listening area, as those
who listen to all other stations (U.S. and worldwide) combined.21
Streaming is a very small, ancillary part of any broadcasters business. Audiences
for simulcasts are universally a small fraction of a stations over-the-air audience.
In addition, the content of a broadcast simulcast is driven by local and over-theair needs, not by considerations relevant to the development of a viable Internet
business.22 Programming is selected to compete in the local, over-the-air market, not
19 See BRS Media Inc., BRS Medias Web-Radio Report[s] Strongest Growth Segment of
Webcasting is Radio, www.brsmedia.fm/press000410.html (viewed April 16, 2000).
20 See BRS Medias Web-Radio reports a steep decline in the number of stations webcasting,
http://www.brsmedia.fm/press020912.html (viewed June 8, 2004).
21 See, e.g., Internet 9: The Media and Entertainment World of Online Consumers, Special
Radio Industry Edition, available at http://www.arbitron.com/downloads/I9NAB.pdf (viewed June
8, 2004).
22 Thus, whether disseminated solely over the air or simultaneously streamed over the Internet, local radio broadcast programming serves the needs and interests of the local community
in which the broadcaster has been licensed by the FCC. The programming includes, for example,
(1) locally produced public service announcements to benefit the local community (Digital Per-

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00032

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

29
an Internet market characterized by webcasters with tens, or hundreds, of genrespecific channels. A single radio station on the Internet simply cannot, and does not,
try to compete with the likes of AOLs Radio@Network, Yahoo!s LAUNCHcast,
Live365, or Virgin Radio. The audience, and the business model, are dramatically
different.
Even when streamed over the Internet, local radio broadcast transmissions serve
the needs and interests of the local community in which the broadcaster has been
licensed by the FCC. The programming includes, inter alia, (1) locally produced public service announcements to benefit the local community 23; (2) local news, sports
and weather; and (3) station announcements encouraging community members to
vote in upcoming elections.24
Broadcasters are proud of their record of local service. Attachment A to this Statement gives just a few examples of outstanding local service, several of which were
honored by NAB on June 14th. They include work to combat domestic abuse, extraordinary efforts during Hurricane Isabel, and work with students in remote parts
of Alaska. The Attachment also describes local broadcasters work with the Amber
Alert system that works to recover abducted children. To date, local broadcasters
have helped recover 134 abducted children. Just this past May, residents of Hallam,
Nebraska credited radio stations KSLI, KTGL, KZKX, KIBZ, and KLMY with saving
their lives by joining a local television station in providing several hours of uninterrupted coverage of severe tornados and storms that devastated the town. Residents
were able to evacuate to safe areas because of the extensive coverage of the storms
provided by broadcasters.
III. SPECIFIC CHANGES IN THE LAW THAT ARE NEEDED
TO FOSTER SIMULCAST STREAMING

The root cause of the problems with simulcast streaming today is easy to explain.
The rules were developed by the record companies and Internet-only webcasters to
meet programming and business models that differs dramatically from those of
radio. A single set of sound recording fees have been set for radio simulcasts and
for multi-channel Internet-only webcasters on the basis of a false premise that the
two compete in the same market. In fact, radio simulcasting has unique needs that
must be accommodated in the law, if the public is to have access to this service.
The radio industrys concerns relate to four distinct sets of issues(i) the sound
recording performance fee for Internet streaming, including the amount of the fee,
the fact that it is imposed on broadcasters for listeners who are within the broadcasters local service area, and the standard by which that fee is determined, (ii) the
conditions under which the necessary statutory licenses are available, (iii) the law
governing the making of copies used solely to facilitate lawful performances, and (iv)
the threat of impossible and unnecessary reporting and record keeping requirements.
A. Simulcast Streaming to Listeners within a Stations Local Service Area Should
Be Exempt.
Congress should make clear that Internet streaming of a radio broadcast to members of a radio stations local over-the-air audience, is not subject to the sound recording performance right, just as the over-the-air performance is not. Internet
transmissions to those local audiences are indistinguishable from over-the-air performances. As discussed above, they are provided as a service to the public that is
ancillary to the over-the-air transmission, to facilitate access. Transmissions to
these local audiences provide the same public service benefits to the community as
over the air transmissions.
Further, Internet transmissions to a radio stations local audience provide the
same promotional benefits to the record companies as the stations over-the-air
broadcasts. As the arbitration Panel concluded, [t]o the extent that internet
simulcasting of over-the-air broadcasts reaches the same local audience with the
same songs and the same DJ support, there is no record basis to conclude that the
formance Right in Sound Recordings Act of 1995: Hearings on H.R. 1506 Before the House
Comm. on the Judiciary, 95th Cong. 1, at 118 (1995) (hereinafter 1995 House Hearings) (Executive Summary of Broadcasting Featuresindependent study submitted by NAB)); (2) local
news, sports and weather; and (3) station announcements encouraging community members to
vote in upcoming elections. Id.
23 1995 House Hearings, at 118 (Executive Summary of Broadcasting Featuresindependent
study submitted by NAB).
24 Id.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00033

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

30
promotional impact is any less. 25 RIAAs own CARP witness agreed that [p]er capita per listener minute, the promotional benefit to Sony of someone listening to a
radio signal over-the-air and someone in the same geographical area listening to the
same signal over their computer is going to be very similar. 26
The Copyright Act recognizes that transmissions within a radio stations local
service area are special, and specifically exempts from the sound recording performance right retransmissions of radio broadcasts that remain within a 150-mile radius
of the transmitter.27 This exemption is not available if the broadcast is willfully
or repeatedly retransmitted more than a radius of 150 miles. 28 The Copyright Office has held that this exemption does not apply to Internet retransmissions, as
Internet transmissions are not so limited.
Of course, in 1995, when this exemption was enacted, Congress was not focused
on the fact that Internet retransmissions could not be limited to 150 miles. There
is no reason to limit this exemption to retransmission services that prevent retransmissions beyond the stations local service area. Transmissions beyond 150 miles
can be subject to the right and charged a fee. Transmissions to local listeners should
not be, regardless of the fact that other listeners may be outside the local service
area.
B. The Sound Recording Performance Fee, and the Standard By Which it Is Set,
Should Be Reformed.
The DMCA negotiations also produced a profound change in the standard by
which the sound recording performance fee is set. In 1995, after a fully inclusive
process, Congress determined that the fee should be based on a consideration of four
policy factors that previously governed rate setting set forth in section 801(b) of the
Copyright Act. These factors include affording the copyright owner a fair return and
the user a fair income, recognizing the contribution of both the copyright owner and
the service, including the contribution in opening new media for communication,
and minimizing the disruptive impact on the structure of the industries involved
and on generally prevailing industry practices.
The DMCA negotiations gave rise to a new standardthe rates and terms that
would have been negotiated in the marketplace between a willing buyer and a willing seller, 29 a standard that has given rise to a presumption in favor of agreements
negotiated by the cartel of record companies, acting under the antitrust exemption
contained in the Copyright Act.30 The standard, and the RIAAs use of that standard, led to an unreasonably high fee in the CARP that set sound recording fees.
1. The Willing Buyer/Willing Seller Standard Is a Recipe for Abuse.
In the 19982002 proceeding, RIAA relied on 26 agreements its Negotiating Committee had reached with webcasters that had specific needs and a willingness to
pay a fee far above the fee that would prevail in a competitive free market. As the
arbitration panel found:
[b]efore negotiating its first agreement, RIAA developed a strategy to negotiate
deals for the purpose of establishing a high benchmark for later use as precedent, in the event a CARP proceeding were necessary. The RIAA Negotiating
Committee reached a determination as to what it viewed as the sweet spot
for the Section 114(f)(2) royalty. It then proceeded to close only those deals
(with the exception of Yahoo!) that would be in substantial conformity with that
sweet spot. 31
The sweet spot was not based on any calculation of a reasonable rate of return
or any economic study, but simply reflected on the Negotiating Committees instinct
of what price the marketplace would bear. Report 48 n. 28. The Panel found a consistent RIAA strategy to develop evidence to present to the CARP.32
The RIAA Committee adopted a take-it-or-leave-it approach, entering into agreements with services willing to agree to its terms for numerous reasons that did not
reflect the value of the sound recording performance right.33 In fact, not a single
radio broadcaster was willing to pay the fees sought by RIAA. For this, and a host
25 Final Report of the Copyright Arbitration Royalty Panel in Docket No. 20009 CARP DTRA
1 & 2 (February 20, 2002) (hereinafter Panel Report) at 75.
26 Transcript of CARP Proceedings at 1286162 (McDermott).
27 114(d)(1)(B).
28 114(d)(1)(B)(i).
29 114(f)(2)(B).
30 114(e)(1).
31 Panel Report at 48.
32 Id. at 49. The Panel found that RIAAs denials lack[ed] credibility in light of extensive
record evidence. Id. 4951.
33 Id. at 51.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00034

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

31
of other reasonsincluding the fact that many of RIAAs licensees never paid any
fees under their agreements, or never commenced operationsthe Panel concluded
that 25 of the agreements do not establish a reliable benchmark. 34 The Librarian
confirmed the Panels rejection of these agreements.
Nevertheless, the Panel ultimately relied entirely on the twenty-sixth agreementthe agreement between the RIAA Negotiating Committee and Yahoo!despite the fact that this agreement resulted from the same common plan by the Committee to create CARP evidence. Further, despite the fact that the Yahoo agreement
defined the fee for simulcast streaming at .05 cent per listener per song after an
initial bulk payment, the Panel increased the fee to .07 cent.
Incredibly, the Panel had before it Yahoos own testimony that it made the deal
not because it believed the sound recording fee was competitive, but because it
wanted to avoid the cost of participating in the CARP, estimated to exceed
$2,000,000. Not by coincidence, this amount was approximately the total amount
Yahoo paid under its agreement. In short, the deal did not reflect the value of the
sound recording performance right; it reflected the cost of avoiding participation in
the CARP litigation.
Yahoo also testified that it could not pass along to broadcasters even the .05-cent
per performance fee set forth in its agreement for radio retransmissions. Yahoos
representative told the panel:
[W]eve not passed any of these fees along to the radio stations because we have
every interest in keeping those stations signed up with us. So weve made the
business decision that it made more sense for us to actually stomach these fees
than to try to pass them on to our radio station partners because were afraid
that if we tried to do that, they would terminate their agreements with us.35
Upon further questioning, Yahoos representative confirmed that Yahoo!s judgment is that if it passed along to the radio stations the radio station retransmission rate that it has negotiated, a lot of those stations would just pull the
plug. 36
Moreover, Yahoo terminated the deal at the end of 2001, before the Panel issued
its report recommending a fee. Then, within one week after the Librarian announced his decision affirming the Panels proposed fee, Yahoo announced that it
was shutting down its radio retransmission business.
Later, after the Librarians decision was rendered, other evidence emerged, further confirming just how unreliable the Yahoo deal was as an indicator of a competitive fair market fee. Mark Cuban, the founder and President of Broadcast.com, the
company that became Yahoos broadcast retransmission business, wrote in June
2002 to the industry newsletter Radio and Internet News to say that the deal
with RIAA was designed with rates that would drive others out of the business so
there would be less competition. 37
Why did the arbitration panel rely on this agreement under these circumstances?
Simply put, the Panel concluded that an effort to derive rates which would have
been negotiated in the hypothetical willing buyer/willing seller marketplace is best
based on a review of actual marketplace agreements. 38 In short, the Panel essentially created a presumption in favor of the RIAA agreements, despite the overwhelming evidence that those agreements did not represent the relevant, hypothetical, competitive free market.
The radio industry, of course, believes this decision was grossly incorrect, and we
are continuing to prosecute an appeal in the D.C. Circuit. Unfortunately, that appeal wont be heard until October, and no decision is likely for months thereafter.
In the meantime, the Librarians decision hangs around our neck like the Ancient
Mariners albatross.39 Further, the D.C. Circuit has, in the past, applied a very deferential standard of review to the Librarians decision, so while our cause is just,
34 Id.

at 5160.
of CARP Proceedings at 11,429 (Mandelbrot).
36 Id. at 11,430.
37 See Attachment B, hereto.
38 Panel Report, 43.
39 Indeed, in the face of this precedent, the crushing cost of a second CARP proceeding after
the first had cost millions of dollars, and the lack of revenue to justify a second CARP proceeding, several large broadcast groups including Susquehanna agreed to a continuation of the
existing fee through 2004, pending the outcome of the appeal of the first proceeding, legislative
action on HR 1417, and our hope that Congress would act to reform the fee standard and provide the legislative relief sought here. This agreement should in no way be viewed as acceptance
of the reasonableness or validity of that fee.
35 Transcript

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00035

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

32
there is a significant risk that the courts simply will not act to rectify this dysfunctional situation.
2. The Radio Industry Needs Prompt Relief from the Fee Set in 2001.
Based on the Yahoo Agreement, Librarian decreed that broadcasters engaged in
simulcast streaming should be required to pay .07 cents per listener per song, plus
an additional 8.8% for the right to make server copies to facilitate the performances,
which I will discuss below. The total fee is .07616 cent for each song played to each
listener. While this may not sound like a lot at this most granular level, the evidence presented to the Panel showed that it was more than three times what radio
stations pay ASCAP, BMI and SESAC combined, for the right to perform musical
works over the air.
Further, the fee adds up quickly if a station has any Internet audience at all. Considering that a typical music station plays about 11.5 songs per hour, on average,
a station that made performances to an average of just 500 listeners at a time
would pay more than $38,000 per year in sound recording licensing fees. Susquehannas KPLX, known and loved by Dallas radio listeners as Texas Country, 99.5
The Wolf, will pay almost $50,000 in fees in 2004, if listenership follows the trend
set in the first quarter of this year. And that reflects a growth in Internet
listenership of about 55 percent since 2001, which is still a small fraction of our
over-the-air audience. If The Wolfs Internet listenership were to ever approach its
over-the-air audience, the bill could eventually become a staggering $15 million a
year in sound recording royalties alone. And that is just one of our stations.
Compare this to what the entire radio industry pays for the right to stream radio
broadcasts over the Internet to the composers, lyricists and publishers who combine
to create the music that forms the core of a recorded song. For example, under a
negotiated agreement with BMI, which controls about half of the music played on
radio, the radio industry as a whole pays a flat fee averaging $500,000 per year for
the unlimited right for each and every radio station to stream its broadcast to as
many listeners as possible, with no conditions on the content of those performances.
There is absolutely no justification for a system that requires radio stations to
make payments to record companies that so dramatically exceed the freely negotiated amount paid to musical work copyright owners. We are aware of no other
country in the world where this situation exists. The situation is doubly absurd, because record companies and artists receive far more benefit from record sales that
are stimulated by radio airplay than do the musical work copyright owners.
The sound recording performance fees are simply exorbitant. Congress should
take action, just as it did when it passed the Satellite Home Viewer Improvement
Act of 1999 in part to vacate the decision of a CARP and reduce by one third to
almost one half, the royalty fees to be paid by satellite television services.40 This
relief could take several forms, including cutting the fee to no more than what the
radio industry pays to all musical work copyright owners for the right to stream
their broadcasts over the Internet.
C. The Statutory Performance License Conditions Must Be Reformed To Accommodate Longstanding Industry Practice.
The statutory performance license applicable to Internet streaming contains several conditions that are incompatible with the traditional way radio stations are programmed and administered. These conditions impose untenable choices on radio
broadcasters:
Change their programming and business practices (an absurd concept given
the success of these practices, the relatively miniscule audience that even successful stations obtain over the Internet compared to over the air, and
Congresss clearly stated desire not to change radio broadcasting practices);
Obtain direct licenses from each and every record company whose music they
play (an even more absurd concept, considering the impracticability and Congress longstanding desire to keep record companies and radio broadcasters
from direct dealings over what gets played on the radio);
Stop streaming (an idea wholly inconsistent with Congress goal of getting
more music to consumers over the Internet and contrary to the interest of the
listening public, which wants the convenience of hearing their favorite station
when they might not have access to a radio); or
Face the prospect of having to defend uncertain and hugely costly copyright
infringement litigation if any claims are made that the statutory license is
not available.
40 Pub.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Law 106113, 113 Stat. 1501, 1004, codified at 17 U.S.C. 119(c)(4).

Jkt 089266

PO 00000

Frm 00036

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

33
The statutory sound recording performance license for streaming contains nine
eligibility conditions. Three of these conditions, negotiated behind closed doors by
the RIAA and DiMA on the eve of House passage of the DMCA, are so inconsistent
with longstanding broadcasting practices that the parties recognized that they could
not be complied with. Thus, while the statute exempts third-party broadcasters that
retransmit radio broadcasts from these conditions, it requires broadcasters who
want to stream their own programming to comply with them.41 The situation is unfair, unstable, not in the public interest, and must be changed.
The specific conditions that cause problems for broadcasters are:
Condition (i), which prohibits the play of sound recordings that exceed the socalled sound recording performance complement during any 3-hour period,
of 3 selections from any one album (no more than 2 consecutively), 4 selections by any one artist (no more than 3 consecutively), or 4 selections from
a boxed set of albums (no more than 3 consecutively); 42
Condition (ii), which calls into question the ability of a disc jockey to announce the songs that will be played in advance; 43 and
Condition (ix), which requires the transmitting entity to use a player that displays in textual data the name of the sound recording, the featured artist and
the name of the source phonorecords as it is being performed.44
1. The Sound Recording Performance Complement Is Discriminatory and Inconsistent with Broadcasting Practice.
Radio stations often play blocks of recordings by the same artist or play entire
album sides. These features, such as Breakfast with the Beatles, or Seven Sides at
Seven, are popular among listeners and remind audiences of great music that is
available to buy. Tribute shows (or entire tribute days) are also common on the
death of an artist, an artists birthday, or the anniversary of a major event in music.
Thus, many radio stations played numerous George Harrison songs throughout the
day after he died. Radio stations similarly played many Beatles songs on the fortieth anniversary of their first arrival in New York. All of these practices would violate the statutory license if the station were streaming.
Even if a station wanted to change its practices to comply with the complement,
it would be virtually impossible to do so without the assistance of a computerized
music automation system to establish playlists that comply with the complement.
Many smaller stations do not use such systems.
Again, third-party webcasters retransmitting radio broadcasts are protected: this
requirement does not apply in the case of a retransmission of a broadcast transmission if the retransmission is made by an entity that does not have right or ability to control the programming of the broadcast station. 45
2. The Prohibition on Pre-Announcements Is Discriminatory and Inconsistent
with Broadcasting Practice.
Condition (ii) prohibits prior announcement of the specific sound recordings to
be transmitted or, even, the names of featured performing artists other than for
illustrative purposes. This may well mean that every time one of our DJs says
Next up, the latest hit by Beyonce , or even, in the next half hour, more Led Zeppelin, the DJ is violating the license and putting our station at risk for being sued
for copyright infringement.
These, and the naming of songs to be played in the near future, are all common
broadcasting practices. Ironically, in all of the many years I have been working in
radio, record companies have always encouraged radio stations to make such announcements, as they help keep the listener tuned in and waiting to hear the latest
and greatest song. To make saying as much the trigger for copyright infringement
is just ridiculous, but that is the way the law is written today.
Of course, the DiMA-RIAA negotiations on the DMCA took care of non-broadcaster webcasters. Like the other statutory license conditions that dont match reality, third party retransmitters received a broad exemption from this requirement.

41 See,

e.g., 114(d)(2)(C)(i), (ii) and (ix).

42 114(d)(2)(C)(i).
43 114(d)(2)(C)(ii).
44 114(d)(2)(C)(ix).
45 114(d)(2)(C)(i).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00037

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

34
3. The Obligation To Provide the Internet Player with a Simultaneous Display
of Title, Artist and Album Information Is Discriminatory and Beyond the
Capabilities of Radio Stations.
Condition (ix) requires broadcasters to transmit a visual statement of the title,
artist, and album of the current song playing. This requirement simply does not recognize the realities of the radio business, which has developed over the years to
meet the needs of its over-the-air business model. For example, the condition requires a transmitting entity to have a digital automation system to control its
broadcasts and to have title, artist and phonorecord information loaded into that
system. Many stations do use such a system. But many smaller radio stations, and
some of the largest, still run their broadcasts the old-fashioned wayproduction
staff place a CD manually into the player, hit the play button, and turn dials to
fade out one song and start the next.
Further, the great majority of recordings played by radio stations are received directly from the record companies, in the form of advance promotional singles and
albums, or from third party services. Although these discs often include a phonorecord title, many do not. Moreover, radio stations often do not load that title into
their music information databases, because it is not relevant to their primary overthe-air activity. Even many of those that do capture this information havent been
able to figure out the technology to make the information appear on the player of
the recipient. These stations should not be disqualified from Internet streaming.
Once again, of course, DiMA and RIAA agreed that the statute should exempt
third party retransmitters of broadcast signals.
It makes no sense, and serves no ones interests, to require radio stations to alter
their programming practices, which have served both them and the record industry
well for decades. Nor is it fair or practical to require broadcasters to incur substantial costs to change the way they do business in order to stream their broadcasts
over the Internet. This would be worse than the tail wagging the dog, as Internet
streaming today isnt even a hair on the tail, compared to radios core business.
There has never been a showing that these three conditions offer any benefit to
anyone. They should be eliminated.
D. Congress Should Provide an Exemption for Reproductions of Sound Recordings
and Underlying Works Used Solely To Facilitate Licensed or Exempt Performances, and Should Ensure That the Conditions Applicable to Those Exemptions
Are Consistent with Modern Technology.
Section 112 of the Copyright Act provides the right to make certain royalty-free
temporary copies of musical works and sound recordings from which transmissions
are made and that have no purpose other than to facilitate licensed or exempt public performances. These provisions need to be expanded and adapted to accommodate modern realities.
The ephemeral recording exemption of Section 112(a) of the Copyright Act allows
an entity entitled to make a public performance of a work to make one copy of the
material it is performing in order to facilitate the transmission of that performance,
subject to certain restrictions. This exemption is based in large measure on the
premise that if a transmitting entity had paid for the right to perform the work,
it would be unreasonable (and a form of double dipping) to make the entity pay a
second time for the right to make a copy that had no other role than facilitating
that performance.46 The exemption was created during the 1976 revision of the
Copyright Act and was crafted to reflect the technology of the time, namely, the use
of program tapes by radio and television stations to facilitate their performances.47
Of course, program tapes are no longer the staple of broadcasters. Now, radio stations typically use digital compact discs and digital music servers to make their performances. However, stations still have the practical need to make recordings in
order to make licensed performances. In fact, broadcasters may need to create multiple copies in order to engage in Internet streaming, and the transmission technology itself may cause additional copies to be made.
The DMCA recognized this practical reality when it created the statutory license
in Section 112(e) for multiple ephemeral recordings of sound recordings performed
46 Likewise, if public policy interests decreed that the performance should be exempt, there
was no rationale for charging a fee to make a copy used solely to facilitate the exempt performance.
47 See H.R. Rep. No. 941476, at 101 (1976) (noting that the need for a limited exemption
[for ephemeral recordings] because of the practical exigencies of broadcasting has been generally
recognized.).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00038

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

35
under the new sound recording performance license. However, by creating a statutory license instead of expanding the Section 112(a) exemption, the law created an
artificial opportunity for record companies to double dip and earn added fees based
on the technology used by the transmitting entity rather than on the economic value
of the sound recording.
The Copyright Office opposed this statutory license in 1998 and has recently restated its opposition and its belief that an exemption should be enacted. In the report ordered under Section 104 of the DMCA, the Copyright Office commented that
the Section 112(e) ephemeral recording license can best be viewed as an aberration. 48 The Office went on to say that it did not see any justification for the imposition of a royalty obligation under a statutory license to make copies that have no
independent economic value and are made solely to enable another use that is permitted under a separate compulsory license. . . . Our views have not changed in
the interim, and we would favor repeal of section 112(e) and the adoption of an appropriately-crafted ephemeral recording exemption. Id.
Further, the DMCA left a significant gap in the law that has created further risk
and uncertainty for all transmitting organizations, even those paying the double-dip
ephemeral recording royalty to the record companies. The Section 112(e) statutory
license applies to the sound recording, but does not apply to the musical or other
works embodied in those sound recordings. It makes no sense to differentiate between the sound recording and the underlying work that is the subject of the recording. Such copies should be exempt for the same reason that multiple ephemeral recordings of sound recordings made solely to facilitate a licensed performance should
be exempt.49
Moreover, three conditions applicable to the existing ephemeral recording exemption (two of which also apply to the Section 112(e) statutory license) discriminate
against broadcasters and ignore the realities of todays technology. First, the exemption in Section 112(a) applies only to copies made to facilitate performances made
in the transmitting organizations local service area. The legislative history of the
DMCA made clear that, where the Internet was involved, the local service area
was congruent with the reach of the Internet.50 However, in its December 11, 2000
rulemaking holding radio subject to the sound recording performance right, the
Copyright Office attempted to support its conclusion by taking the position that
broadcasters, but not Internet-only webcasters, were subject to a narrower local
service area (their primary broadcasting area) and that the Section 112(a) exemption was not available when broadcasters streamed their programs on the Internet.51 Unfortunately, in making these comments, the Copyright Office was focused
on sound recordings, which are subject to the Section 112(e) statutory license; it
failed to consider the impact of its position with respect to musical works, which
are not covered by Section 112(e). If the Offices dictum is correct, radio stations
that stream their broadcasts would face significant uncertainty and risk with respect to ephemeral recordings of the musical works they broadcast. Congress could
not have intended this result. Any ephemeral recording exemption should extend beyond transmissions within a local service area.
Second, the exemption provides that no further copies or phonorecords may be
made from the exempt or licensed ephemeral recording. While that limitation
worked for program tapes, it does not work with todays transmission technologies.
The Internet operates by making intermediate copies. Cache and other intermediate
copies are essential to any transmission.52 Digital receivers also typically make partial buffer copies of the works being performed. The no further copies condition
should be amended so that it does not apply to copies or phonorecords made solely
to facilitate the transmission of a performance.53
48 See

U.S. Copyright Office, DMCA Section 104 Report at 144 n.434 (Aug. 2001).
49 Further, there is no known licensing mechanism available to license the ephemeral recording of all works embodied in performed sound recordings.
50 See Digital Millennium Copyright Act, H.R. Conf. Rep. No. 105796, at 80 (Oct. 8, 1998)
(clarifying that Section 114(f)-licensed webcasters, whose local service area is the Internet,
are entitled to the benefits of section 112(a)).
51 See 65 Fed. Reg. at 77,300.
52 See H.R. Rep. No. 105551, Part 2, at 5051 (July 22, 1998).
53 For the same reason, the law should deal clearly with those cache and buffer copies, which
may or may not qualify within the scope of the existing Section 112(e) license. The Copyright
Office, in its Section 104 Report, supports this recommendation; after extensive study of the
issue, the Copyright Office recommended that Congress enact legislation amending the Copyright Act to preclude any liability arising from the assertion of a copyright owners reproduction
right with respect to temporary buffer copies that are incidental to a licensed digital transContinued

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00039

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

36
Third, broadcasters more and more are using digital music servers to make licensed performances. Music from compact discs may now be loaded onto computers,
from which the performances are transmitted. These server copies have no use other
than to facilitate the performance. It serves no purpose, and creates a dead-weight
economic loss, to require transmitting organizations to purge these servers every six
months.
The ephemeral recording exemption is designed to ensure that transmitting entities that are providing performances to the public can operate efficiently and without uncertainty and risk. These performances are already fully compensated or have
been deemed exempt from copyright liability. There should be no further payment
needed to make copies used only to facilitate the permitted performance.
E. Congress Should Ensure that Reporting Requirements Do Not Preclude Broadcasters from Engaging in Simulcast Streaming.
The Copyright Act directs the Copyright Office to establish requirements by
which copyright owners may receive reasonable notice of the use of their sound recordings under the statutory license and under which records of use shall be
kept. 54 The Copyright Office has construed these provisions to require each and
every service performing sound recordings to provide identification of numerous
data points for each sound recording performed in order to facilitate distribution of
royalty fees, regardless of whether a service receives such data in the first instance
(e.g., from the record company providing the sound recording for play, or from a
third party syndicators that creates the program) and regardless of whether the
service maintains such data in the ordinary course of its business.55 The Office has,
on an interim basis, required these reports for two weeks each calendar quarter.
However, the Office has stated that it is highly likely that additional requirements
will be set forth after the Office has determined the effectiveness of these interim
rules and that its ultimate goal is to require comprehensive reporting on each performance a webcaster makes. 56
To the Copyright Offices credit, the interim regulation is far more manageable
than its original proposed rule.57 That proposed rule was based on the recording industrys wish-list of census reporting of a multitude of data points for each and
every performance, and would have eliminated virtually all broadcasters from the
Internet. The industry is assessing the interim regulation, and I am confident that
those who are streaming are doing their best to comply.
Unfortunately, the interim regulation is still inconsistent with the way many
broadcastersparticularly smaller stationsdo business. Thus, it all but assures
that such stations will be kept from streaming their programming on the Internet.
Moreover, the threat of added burdens in the future weighs heavily on the decision
to stream or not.
It is important to keep in mind that broadcasters have developed their internal
systems to run their primary over-the-air business, not an ancillary Internet service
that generates very few listeners. Most of the sound recordings played by radio stations are provided to those stations by the record companies themselves. Typically,
these sound recordings are provided on special promotional disks, not the retail
album sold to consumers. The precise nature of these promotional recordings varies.
In some cases, they are in slickly produced special promotional singles. At other
times, the recordings are on homemade CD-Recordables, or CD-Rs, not unlike
the discs consumers would burn using their home computers, that contain one or
more songs and are identified by nothing more than a handwritten or typed label.
Some stations get their music by direct electronic download into the broadcast
groups servers, or are sent MP3 files. Smaller labels provide music with even less
formality. There is only one constantthe music provided by the record labels to
radio Broadcasters commonly do not contain all of the information required even by
the interim rule, much less the information that would be required by a more comprehensive final rule. For example, record companies routinely send radio stations
songs with only title and artist information.
In addition, almost all radio stations broadcast third-party content at some point
during their broadcast day. These syndicated and other third-party programs, provided for over-the-air use, are often accompanied by little, if any, information about
the music they include. Nevertheless, the Copyright Office has concluded that it
mission of a public performance of a sound recording and any underlying musical work. See
DMCA Section 104 Report at 14243.
54 114(f)(4)(A).
55 See 69 Fed. Reg. 11,515, 11,521 (March 11, 2004).
56 Id. at 11,518, 11,522.
57 67 Fed. Reg. 5761 (Feb. 7, 2002).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00040

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

37
does not have authority in the Act to exempt such programs from any reporting
obligation, despite the fact that the Act required only reasonable notice and recordkeeping.58
Further, even those radio stations that have automated their music scheduling,
have done so around the needs of their over-the-air broadcasts. Thus stations typically have not captured the name of the record label or the album name in their
computers. Others dont rely on automated scheduling, and it would cost millions
of dollars to redesign systems or to create new systems. Many stations simply cannot justify such cost for the limited benefits of streaming.
The type of census reporting the Copyright Office says it intends to require in the
future is not necessary in order to permit reasonable accuracy in royalty payments.
Indeed, the large music performing rights organizations (PROs), ASCAP and BMI
use sampling for their distribution, and require a smaller sample than the Copyright Office has included in its interim rulestypically one or two weeks per year.
The PROs even shoulder most of the burden of gathering data themselves by listening to radio stations.
Moreover, the music PROs, as well as standard recording industry publications,
identify recordings by title and artist information alone. This information, which is
consistent with the information provided by record labels to radio stations when
they provide the records we play, should provide sufficient information to permit
distribution.
Congress should either clarify the law or make clear that the reasonable reporting obligation it imposed contemplates reasonable sample periods, permits the exclusion of information a station lacks, and would be satisfied by the reporting of
sound recording title and artist name.
CONCLUSION

We appreciate the Subcommittees interest in this matter of great concern for

radio broadcasters. We hope that, as a result of this hearing, the Subcommittee has
the basic background information it needs to repair the law governing the simulcast
Internet streaming of radio broadcasts.
The webcasting provisions of the DMCA were written with Internet-only
webcasters, not radio broadcasters, in mind. We urge the Subcommittee to act
promptly and decisively to begin the process of fixing the law in a manner that
properly accounts for longstanding radio programming and business practices and
recognizes the ancillary nature of Internet streaming to radio broadcasters. The
NAB stands ready to work with the Subcommittee to reform the system so that
radio broadcasters will not continue to be kept off the Internet by excessive fees and
unrealistic and overly burdensome statutory license conditions and reporting requirements.
The current state of affairs harms not only radio broadcasters, but their listening
public, who often are unable to listen to their favorite stations in places where overthe-air reception is hampered. It also harms the copyright owners of musical works,
who are deprived of their public performance revenues, and performing artists, who
are deprived of this additional avenue of exposure and promotion for their music
by an industry that for decades has worked hand-in-hand with the recording industry to create demand for those sound recordings through the airplay they receive
through radio.

Mr. SMITH. Mr. Marks.

TESTIMONY OF STEVEN M. MARKS, GENERAL COUNSEL,
RECORDING INDUSTRY ASSOCIATION OF AMERICA, INC.

Mr. MARKS. Good morning, Mr. Chairman, Ranking Member Berman, and Members of the Subcommittee. I am Steven Marks, General Counsel of the Recording Industry Association of America; and
we appreciate the opportunity to present our views concerning the
balance between the interest of sound recording creators and users.
I would like to begin by thanking the Subcommittee under the
leadership of Chairman Smith and Ranking Democratic Member
Berman for its commitment to ensuring that sound recording creators continue to have the incentives necessary to make music.
58 69

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Fed. Reg. at 11,521.

Jkt 089266

PO 00000

Frm 00041

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

38
Today, we are at a critical juncture in ensuring that those economic incentives continue to exist. New developments threaten to
undermine key assumptions of legislation designed to protect the
creators of sound recordings. Let me explain.
In the Digital Performance Right and Sound Recordings Act, and
the Digital Millennium Copyright Act, Congress recognized that
Americas unique lack of a sound recording performance right
leaves creators of recordings singularly dependent on sales income.
This recognition led to the fundamental premise of that legislation,
that services performing recordings through new digital technologies should not be allowed to displace sales.
To that end, the DPRA and DMCA struck a carefully balanced
multifaceted compromise among competing interests. Congress distinguished among three main categories of services:
First, free local over-the-air broadcasts were exempted because
they were thought not to pose a threat to the description of recordings;
Second, digital subscription services and webcasters were granted a statutory license with conditions designed to ensure that sales
would not be displaced;
Finally, interactive services were made subject to full copyright
protection because they were thought most likely to displace sales.
Now, new recording functionality allows users to cherry-pick recordings meant only to be performed, vitiating the assumptions underlying the DPRA and DMCA. For example, software such as
Streamripper and Replay Music enable users to easily record
streaming music from webcasters and its simulcasters, save it as
individual, high-quality MP3 files which are automatically tagged
with the artist and song title. Some even offer integrated CD burning.
Likewise, as broadcasters switch to digital over-the-air broadcasting, opportunities for people to take music without paying for
it are inevitable unless the recordings in those broadcasts are protected. The FCC has tentatively decided to permit digital broadcasting in the clear, that is, without any protection for the copyrighted works being broadcast. If the FCC sticks with that decision,
digital radio receivers will permit listeners to automatically build
CD-quality libraries of music without ever listening to the broadcast. There will be little reason for most consumers to buy a
download from a legitimate online service like iTunes or to buy a
CD if they only need to plug in a digital radio receiver to compile
a collection of every popular recording. Indeed, such copying will
replace peer-to-peer services as a source of music for many who
would rather take it than pay for it.
The effects of these kinds of products is to transform the passive
listening experience we know today as radio into the equivalent of
an interactive performance and distribution service. Such a transformation dramatically changes the nature of these services, which
will become the next platform for piracy. Such a transformation
would also turn the policies of the DMCA and DPRA on their head.
That leaves the question of how to maintain the balance struck by
the DPRA and DMCA.
With respect to digital broadcasting, we are pleased that the
FCC is looking at the issue now. Hopefully, the Commission will

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00042

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

39
do the right thing and provide adequate protection for recordings.
We also hope that broadcasters will join us in embracing use of
such content-protection features because it is not in their interest
for users to automatically record selected music and strip out the
advertising.
Today, we ask this Subcommittee to support our efforts in the
FCC process to ensure that the FCCs regulation of broadcasting
does not undermine Congress consistent copyright policy. For
webcasting, we understand that there is technology available to
protect webcast streams from unauthorized and illegal copying, but
webcasters and simulcasters do not employ that technology.
The statutory license does not require webcasters and
simulcasters to use streaming technologies that effectively protect
recordings from widely available piracy tools. That should change.
And it is also why providing even less content protection as some
are proposing by relaxing the performance complement or otherwise picking apart the compromises struck in the DPRA and
DMCA is not the way to restore balance to this legislation.
Instead, we hope this Subcommittee will ensure that protections
put in place in the DPRA and DMCA are meaningful. The recording industry wants nothing more than to be able to keep creating
the music that Americans enjoy and that make the broadcasting
and webcasting industries viable. The way to keep the music playing is for Congress to remain true to its consistent policy of maintaining real balance in copyright legislation.
Thank you.
Mr. SMITH. Thank you, Mr. Marks.
[The prepared statement of Mr. Marks follows:]
PREPARED STATEMENT

OF

STEVEN M. MARKS

Good morning. I am Steven Marks, General Counsel to the Recording Industry

Association of America (RIAA). I am grateful for the opportunity to present our
views concerning the use of sound recordings by broadcasters, particularly as they
move into the new business of webcasting and rely upon the statutory licensing provisions of Section 114 of the Copyright Act. The provisions of Section 114 provide
important protection for creators at a time when the economic incentives necessary
for the creation of new musical recordings increasingly are under assault from new
uses that do not incorporate protections against abuse of copying and redistribution
technology. I would like to begin by thanking the Subcommittee, under the leadership of Chairman Smith and Ranking Democratic Member Berman, for its dedication to assuring that the public enjoys access to a steady stream of new creative
works by providing protections in copyright law such as those contained in Section
114. However, there is a substantial danger that Congress efforts in this regard will
be undermined by the abuse of new recording technologies not envisioned when
Congress last addressed this subject. I hope this Subcommittee will consider action
to ensure that the important protections it previously has written into law are not
erased by the current threats faced by creators.
As you probably know, RIAA is the trade group that represents the U.S. recording
industry. Its member record companies create, manufacture or distribute approximately 90% of all legitimate sound recordings produced and sold in the United
States and comprise the most vibrant national music industry in the world. This
morning I will begin with some background concerning the provisions of Section
114. I will then explain why the content protection provisions of Section 114 protect
vital interests of RIAA member companies that make it financially possible for the
music industry to keep bringing American consumers the music they enjoy, and why
it may now be necessary to enhance the protective provisions of Section 114 to ensure that Americans continue to have access to creative new music.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00043

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

40
BACKGROUND

As the Committee knows well, copyright law confers upon creators a bundle of exclusive rights. These rights are intended to ensure that creators can receive a fair
return from their creative investment and so are encouraged to createand able to
finance the creation ofnew creative works for the benefit of the American people.
These rights generally include rights of reproduction, adaptation and public distribution, performance and display. Todays hearing primarily concerns performance
rights. In the case of most kinds of copyrighted works, performance rights allow creators to be paid for all means by which works can be rendered, including to a live
audience and by broadcast, satellite, cable, Internet and other transmissions.
However, American copyright law has never afforded to the creators of sound recordings the performance rights enjoyed by the owners of copyright in every other
kind of work, and by recording artists and producers in many other countries. This
is an historical anomaly. When Congress comprehensively revised the Copyright Act
in 1909, there was little in the way of a commercial recording industry, and accordingly, the legislation did not provide any protection for sound recordings. The first
efforts to amend federal copyright law to protect sound recordings date to the 1920s.
However, as the industry matured, and it increasingly became clear that creators
should be compensated for the use of their recordings, proposals for extending copyright protection consistently faced opposition from broadcasters and others who benefited from the uncompensated use of recordings. Thus, it was not until 1971 that
sound recordings received any federal copyright protection at all, and then it was
only half copyright protectionbereft of any performance right.
In the ensuing years, the Copyright Office twice studied the absence of a performance right and unequivocally recommended that a general performance right be extended to sound recordings. Over time, the absence of a performance right became
increasingly problematic in light of new digital technologiessuch as digital cable
and on-demand delivery technologiesthat were clearly the wave of the future and
held the potential to replace record sales with uncompensated performances. Eventually, record companies came to believe that this risk was so great that they should
accept a severely limited performance right to equip the industry for the future.
Under the leadership of members of this Subcommittee and others in Congress,
input was sought from the Copyright Office and all the affected industries: record
companies, musicians unions, broadcasters, cable music services, cable providers,
business music services, music publishers and others. Through those consultations,
a complex compromise was fashioned in the Digital Performance Right in Sound Recordings Act of 1995 (DPRA).
The key elements of that package of compromises are as follows:
Sound recording copyright owners received a performance right, but it was severely limited: It only extended to performances by means of digital audio
transmission.1 Thus, live performances, analog transmissions, and audiovisual transmissions were not covered.
Within the scope of that limited right, there were numerous exemptions.2
Broadcast transmissions, certain retransmissions of broadcasts, and certain
other kinds of transmissions were all exempted.
Most non-exempt digital audio transmissions were made subject to a compulsory license so that users were assured that they would have the ability to
use recorded music at royalty rates set by the government, so long as they
complied with certain content protection requirements carefully crafted to
prevent licensed transmissions from displacing sales.3 Those requirements include:
A numerical limitation, called the sound recording performance complement, on the number of tracks from the same album, artist or box set
that can be transmitted within a three hour period.4 By preventing transmission of entire albums or larger numbers of works by an artist, the complement encourages consumers to buy albums and therefore diminishes the
displacement potential of licensed transmissions.
A prohibition on pre-announcement intended to minimize home recording
by withholding the identity of the recordings to be transmitted.5
1 17

U.S.C.
U.S.C.
U.S.C.
4 17 U.S.C.
5 17 U.S.C.
2 17
3 17

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

106(6).
114(d)(1).
114(d)(2), (f).
114(d)(2)(B)(i), (j)(13).
114(d)(2)(B)(ii).

PO 00000

Frm 00044

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

41
A prohibition on automatic channel switching intended to prevent evasion
of the complement and otherwise prevent a licensee from complying with
channel-specific requirements while offering a service with all the sales displacement potential of an interactive service.6
One important kind of transmission was not made subject to the compulsory
license: an interactive transmission.7 Creators of recordings were permitted
to control interactive digital audio transmissions because they posed the
greatest threat to sales.
In 1998, Congress clarified that this basic arrangement applies to Internet
webcasting. Congress also refined some of the existing conditions on the compulsory
license, and added new ones, to strengthen the protection of sound recordings
against activities that would undermine sales.8 Of these, perhaps the most important is a requirement that transmitting entities not cause or induce copying by
users, and if the technology used by a transmitting entity enables the transmitting
entity to limit copying, the transmitting entity uses that technology to limit copying.9
Thus, the current statutory system recognizes a basic tension between the benefits and risks to the creation and dissemination of music posed by digital technologies. As the Senate Report to the DPRA observes:
new digital transmission technologies may permit consumers to enjoy performances of a broader range of higher-quality recordings than has ever before been possible. These new technologies also may lead to new systems
for the electronic distribution of phonorecords with the authorization of the
affected copyright owners. Such systems could increase the selection of recordings available to consumers, and make it more convenient for consumers to acquire authorized phonorecords.
However, in the absence of appropriate copyright protection in the digital
environment, the creation of new sound recordings and musical works could
be discouraged, ultimately denying the public some of the potential benefits
of the new digital transmission technologies. 10
The current statutory system carefully balances these concerns by distinguishing
various kinds of digital transmissions, and dealing with them differently. At one extreme, free, nonsubscription, over-the-air broadcasts consisting of a mix of entertainment and non-entertainment and other local public interest activities were not in
1995 thought to pose much risk to creators, even if digital broadcasting involved a
higher sound quality than analog, because the passive activity of listening to broadcasts did not appear to pose a threat to distribution of recordings.11 Accordingly,
broadcasts were exempted from the new performance right. At the other extreme,
creators were given the strongest rights with respect to interactive services, because
Of all the new forms of digital transmission services, interactive services
are most likely to have a significant impact on traditional record sales, and
therefore pose the greatest threat to the livelihoods of those whose income
depends upon revenues derived from traditional record sales.12
In between are subscription services and webcasting, which were thought to pose
a risk of substitution, so that compensation to creators and content protection provisions were clearly warranted, but were not though to pose so much of a risk that
creators should have the power to withhold their content to make their own decisions about the degree of risk posed by these services.
CONTENT PROTECTION IS A VITAL PART OF THE DPRA COMPROMISE

The basic architecture of the DPRA described above and the specific content protection provisions of the DPRA protect the very core interests of the recording business. The economics of the recording industry reflect the scope of copyright protection for recordings. Because the creators of recordings enjoy exclusive rights of reproduction and distribution, they are paid for selling copies and, to a much smaller
degree, for licensing reproductions and distributions. Because the creators of recordings have only an extremely limited performance right, they receive only a tiny por6 17

U.S.C. 114(d)(2)(A)(ii).
U.S.C. 114(d)(2)(A)(i).
U.S.C. 114(d)(2)(C).
9 17 U.S.C. 114(d)(2)(C)(vi).
10 S. Rep. No. 104128, at 14 (1995).
11 See Id. at 15.
12 Id. at 16.
7 17
8 17

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00045

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

42
tion of their revenues from licensing performances. That means that sales income
is necessary to finance the creation of new works, and displacement of sales by uncompensated performances poses a grave threat to the industrys ability to continue
to produce the music Americans enjoy. The limitations on the scope of the compulsory license and the specific conditions on the license were included as an integral
part of the package of compromises represented by the DPRA to prevent transmissions from substituting for sales.
Now would be a terrible time to consider picking apart the DPRA compromise by
weakening its content protection provisions. Anyone who has read the newspapers
in the last several years has heard about the tremendous pain that piracyparticularly that caused by peer-to-peer serviceshas inflicted on the music industry. Sales
of recorded music products have declined some 30% over the past three years. Likewise, sales of the top selling albums for each of the past three years has steadily
decreased. Because the top selling albums provide the profits that make possible
creation of the vast majority of recordings that do not achieve commercial success,
these twin factors have deprived the public of creative new music as record companies have been forced to slash their artist rosters and support for new artists. Moreover, the revenue loss occasioned by this reduction in sales of CDs affects not only
the record companies themselves, but the rest of the music industry as well. Lost
sales have reduced royalties paid to artists, songwriters and music publishers, and
thousands of Americans have lost their jobs due to retail store closings. For example, during the first half of 2003 alone, 600 record stores closed, probably in large
part due to the pressures of piracy.
Weakening the protections provided by the DPRA by giving creators even less control over the use of their works is to invite more of the same. By contrast, these
protections should be an immaterial limitation on broadcasters. It bears emphasis
that the digital performance right does not apply at all to the traditional analog
broadcast activities of broadcasters, or to their new digital over-the-air broadcasts.
The provisions of the compulsory license apply to broadcasters only to the extent
they choose to enter the new business of webcasting in search of new profit opportunities. And even then, limitations such as the complement were intended to encompass certain typical programming practices such as those used on broadcast
radio. 13 In addition, should a broadcaster wish to make webcasts in excess of the
complement or other limitations on the compulsory license, it is always free to ask
permission. The marketplace works. Broadcasters obtain clearance for all the other
copyrighted material they transmit, and many webcasters have struck private licensing deals. Nothing in the DPRA prevents a broadcaster from seeking permission
to transmit sound recordings on whatever basis the broadcaster and copyright
owner might agree.
NEW THREATS WARRANT MORE, NOT LESS, PROTECTION

Today, the vital interests the DPRA was designed to protect, and Congress intent
that the DPRA ensure that performing artists, record companies and others whose
livelihood depends upon effective copyright protection for sound recordings, will be
protected as new technologies affect the ways in which their creative works are
used, 14 are in real jeopardy from risks not foreseen nine years ago when the DPRA
was negotiated and enacted. At this critical juncture, attention should be given to
more, rather than less, protection of those interests.
Perhaps the greatest threat the creators of recordings face today comes from recording devices and software that use the identifying information or metadata
transmitted in digital radio and by satellite services, webcasters and others to allow
users to selectively record or disaggregate programs into individual tracks to be listened to again and again apart from the original transmission program, or to be redistributed. Within the basic architecture of the DPRA, such automated recording
is a threat because it blurs the distinctions between broadcasts, noninteractive and
interactive servicesgiving listeners on-demand access to recordings that have been
transmitted and so giving any kind of transmission the sales displacement potential
of an interactive service.
We already see this phenomenon in the case of webcasting, where software such
as Streamripper allows users to copy all of the recordings transmitted on a
webcast channel, disaggregate them, save them to substitute for purchases of legitimate downloads or CDs, and redistribute them with peer-to-peer software.15 Replay
13 S.

Rep. No. 104128, at 34 (1995).

at 10.
Streamrippers own website explains, using Streamripper you can now download an entire collection of goa/trance music, an entire collection of jazz, punk rock, whatever you want.
http://streamripper.sourceforge.net/about.php.
14 Id.
15 As

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00046

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

43
Music likewise enables users easily to record streaming music from webcasters or
subscription services and saves them as individual, high-quality MP3 files that are
automatically tagged with the artist and song title. The program even offers integrated CD burning. Creators have little ability to prevent webcasters from fueling
the use of such software, since the compulsory license does not require webcasters
to use new secure streaming technologies as and when they become available, but
only to take advantage of the security features of the technologies they do use.
As broadcasters switch to digital broadcasting, we fear that we are on the verge
of devastation to the industry that will dwarf the harm wrought by the peer-to-peer
piracy problems of the last several years. Digital broadcasting is a whole new medium dramatically different from analog broadcasting. The FCC has tentatively permitted digital broadcasting in the clearthat is, without any protection for the
copyrighted works being broadcasteven though the technical specifications for the
approved transmission technology indicate it incorporates a sophisticated digital
rights management system. Today, digital radio receivers like The Bug16 have storage that permits features such as pause and rewind. Someday soon, digital receivers
will have built-in hard drives, multi-channel decoding, and electronic program guide
features that will permit users automatically to compile enormous collections of near
CD-quality recordings from digital broadcasts, and to access whatever specific recordings they want whenever they want them.
The unrestricted copying, disaggregation and redistribution of digital transmission
programs threatens to turn noninteractive services, like webcasts and broadcasts,
into the equivalent of on-demand interactive services. This risk is particularly acute
because the music broadcast on radio tends to be the most popular music, which
fuels the economic engine of the recording industry, as well as pre-release recordings, where copying in the days before a recording is released in stores could eat
substantially into sales. There would be little reason for most consumers to buy a
download from a legitimate online service like Apples iTunes store or buy a CD if
they only need plug in a digital radio receiver to compile a collection of every popular recording. Indeed, such copying threatens to replace peer-to-peer services as a
source of music for those who would rather steal it than pay for it. Why run the
risks and endure the bother of using Kazaa if one only need plug in a digital radio
receiver to obtain consistently high-qualities copies of every popular recording? This
kind of technology would mark an unprecedented shift in the nature of broadcasting
and home recording, and upset the delicate balance that Congress and this Subcommittee have tried so hard to maintain over the years.
We are pleased that the FCC is looking at this issue right now. We hope that the
Commission will do the right thing and require that the content protection features
we understand are in the digital broadcast technology tentatively approved by the
FCC be used to protect the livelihoods of everyone in the music industry dedicated
to providing new music to American consumers. We also hope that broadcasters will
join us in embracing use of such content protection features, because it is not in
their interest for users to be able to record automatically selected music they want
to listen to and to strip out the advertising and other broadcast programming. However, digital broadcasting is only part of the problem, so the action we are requesting from the FCC can only be part of the solution. We hope this Subcommittee will
consider adding to Section 114 of the Copyright Act similar content protection requirements for the non-broadcast transmissions covered by Section 114s compulsory
license and will keep an eye on the proceedings before the FCC to ensure that the
Commission acts with respect to broadcast transmissions in a manner consistent
with federal copyright policy.

Mr. SMITH. Mr. Potter.

TESTIMONY OF JONATHAN POTTER, EXECUTIVE DIRECTOR,
DIGITAL MEDIA ASSOCIATION (DiMA)

Mr. POTTER. Chairman Smith, Mr. Berman, and Members of the

Subcommittee, thank you for the opportunity to speak today about
whether the sound recording performance right appropriately balances the interests of creators, broadcasters and webcasters, and
consumers.
16 http://www.pure-digital.com/Releases/Release.asp?ID=212.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00047

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

44
My testimony will focus on how the performance right impacts
Internet radio services offered by DiMA member companies, including Yahoo, AOL, RealNetworks and Microsoft.
DiMA members are pleased that in some respects section 114 is
working as planned. By exposing new and diverse music to enthusiastic audiences and paying many millions of dollars in royalties,
Internet radio has greatly benefited recording artists, record companies and consumers. Unfortunately, the potential success of
Internet radio is limited by imbalances in the legal standards for
determining performance royalties under the section 114 license
and uncertainties in legislative license requirements.
Perhaps the most fundamental imbalance is the continuing exemption of broadcasters from sound recording royalties and digital
programming restrictions. As a result, cable radio, satellite radio
and Internet radio are competitively disadvantaged as a matter of
law.
Even more disturbing is the inequity suffered only by Internet
radio as a result of the new royalty-setting standard that was enacted in 1998. Rates for most statutory licenses, including for cable
and satellite radio, are set using a long-established standard in section 801(b) of the Copyright Act. That equitable standard requires
royalties to be reasonable and fair to both copyright owners and
users.
In the 1995 Digital Performance Right in Sound Recordings Act,
Congress and the Justice Departments Antitrust Division considered the 801(b) reasonableness standard as an essential safeguard
against the collective licensing power of the recording industry.
In 1998, without extensive consultation with the Antitrust Division, Congress created a new standard only for Internet radio, lacking a fairness or reasonableness requirement. In fact, the new
standard effectively compelled the CARP to adopt above-market
rates.
Under the new willing buyer-willing seller standard, the Librarian of Congress ultimately imposed a royalty rate for fledgling
Internet radio services that was 50 percent higher than that paid
by more established competitors in cable and satellite radio. This
enormous rate disparity is indisputably unfair and could not have
been the result Congress intended. Recently, Register of Copyrights
Marybeth Peters suggested to the Subcommittee that the standards
for cable, satellite and Internet radio be conformed. DiMA echoes
that request.
Experience under the 1998 amendments has revealed a second
significant flaw, the new definition of interactive service. For good
reason, the 1995 act made interactive services ineligible for the
statutory license and defined them as essentially on-demand music
services. The 1995 definition was clear and there were no disputes
regarding whether or not a service was interactive. In 1998, to address new services enabled by new technologies, Congress modified
the interactive services definition, but the new standard was significantly more ambiguous.
As the Copyright Office noted in a proceeding on this very question, the amended definition of interactive service requires such
an intensive, fact-specific analysis of each service and its individual
features that one cannot be certain just how much consumer input

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00048

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

45
is permissible before a service crosses the line. However, the Copyright Office agreed with DiMA that the new definition of interactive clearly permits qualified statutory license services to utilize
some amount of consumer influence when creating programming
and play lists.
Despite the Copyright Office decision, the recording industry has
sued for infringement virtually every innovative company that provided consumers a modicum of influence in programming. In fact,
in one infringement litigation against a service that sought to invoke and pay royalties under the statutory license, the recording
industry is asserting that any element of consumer influence in
Internet radio programming makes a service interactive and thus
infringing.
The combination of statutory ambiguity with the enormous potential infringement liability if a service guesses incorrectly how a
court will rule on its eligibility for the statutory license has chilled
innovation, experimentation and investment in Internet radio
which would benefit consumers and creators.
DiMA strongly urges the Committee to reconsider the 1998
amendment to the definition of interactive service, and to either
provide legislative clarity or authorize the Copyright Office to provide regulatory guidance in ways that will not impose retroactive
and inappropriate infringement liability.
These and other issues described in my written testimony have
hindered the development of new, compelling services that will better enable legitimate royalty-paying online music services to compete against piracy. DiMA urges the Subcommittee to consider legislative solutions that help bring the full benefits of Internet radio
to the creative community and to consumers.
Thank you.
Mr. SMITH. Thank you, Mr. Potter.
[The prepared statement of Mr. Potter follows:]
PREPARED STATEMENT

OF

JONATHAN POTTER

Mr. Chairman, Representative Berman, and Members of the Subcommittee:

Thank you for inviting me to testify today on behalf of the Internet broadcast
music performance services offered by DiMA member companies, including by AOL,
Apple, Live365, Microsoft, MusicMatch, Napster, RealNetworks, and Yahoo!.
The subject of todays hearing is balance between the creators and owners of
copyrighted works on the one hand, and broadcasters of sound recordings of all
typesincluding broadcast radio, cable radio, satellite radio and Internet radioon
the other hand. DiMA was formed in 1998 to promote balanced copyright law and
fair competition, as reflected by our two core public policy principles:
1. Creators and copyright owners deserve fair compensation for uses of their
content; and
2. Copyright and commercial law should not discriminate between classes of
media companies based solely upon their choice of technology to deliver content to consumers.
Since the Internet radio sound recording performance license was enacted in 1998
as part of the Digital Millennium Copyright Act, DiMA companies have paid several
millions of dollars in royalties to recording companies and recording artists. In part,
these payments reflect our first core principal, as we support and promote Americas
creators and copyright owners. They also evidence widespread consumer adoption of
Internet radio. However, the very fact of and the amount of these payments serves
to underscore how the law discriminates against Internet media companies based
solely on our choice to deliver music to consumers via the Internet, rather than
broadcast, cable or satellite radio technologies.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00049

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

46
Congress creation of a sound recording right for digital audio transmissions explicitly exempted broadcast radio transmissions. Accordingly, Internet radio services
are significantly disadvantaged vis-a -vis their direct competitors in broadcast radio,
who are not required to license or pay royalties for their performances of sound recordings. In addition, 1998 amendments to the performance right made it unequivocally favor satellite and cable radioeven when those services compete directly with
Internet radio in the broadband music marketplace.
Internet radio competes directly against terrestrial radio for a limited universe of
listeners and advertisers, and competes directly against cable and satellite radio for
an even smaller universe of subscribers and advertisers. Paying higher royalties requires Internet radio to reduce programming or performance quality, or increase advertising prices or frequency, in ways that unfairly inhibit Internet radios competitive opportunity. With respect to the point of this hearing, if, as the Subcommittee
will hear today, the sound recording performance right is out of balance with respect
to any music performance servicethen it is most out-of-balance with respect to online media, as only Internet-based services are subjected to royalty rates set under
the willing buyer-willing seller standard.
Additionally, with respect to Internet radio only, there is a further imbalance,
namely, whether an online music service is permissibly consumer-influenced within
the scope of the Section 114 statutory license or is interactive and thereby fails
to qualify for the statutory license. The definition of interactive as amended by the
DMCA created an ambiguity in the law that has spawned two court cases, has been
the subject of an administrative proceeding in which the Copyright Office declined
to set standards or to provide a roadmap for well-intended royalty-paying compliance, has materially inhibited innovation, and has even driven DiMA companies
into liquidation. Today, more than five years since these legal proceedings were initiated, we ask the Subcommittee to end this legal quagmire and fix the definition
of interactive service so that it reflects Congress intention to promote rather than
inhibit innovative royalty-paying music performance and discovery services.
Finally, I will discuss two additional points of imbalance in the sound recording
performance right: (a) the requirement that online services pay a mechanical royalty
for server copies of sound recordings associated with licensed royalty-generating
public performances; and (b) the sound recording performance complement, which
is overly restrictive and significantly hinders Internet radios competitiveness.
I. THE PERFORMANCE RIGHTS ACT IS GENERALLY UNBALANCED IN ITS TREATMENT OF
COMPETING NEW MEDIA SERVICES, AS INTERNET RADIO SUFFERS A MARKEDLY LESS
FAVORABLE ROYALTY-SETTING STANDARD.

When the sound recording performance right was enacted it was expressly imposed only on new digital music servicesnot on FCC-licensed broadcasts, which
Congress exempted even for digital audio terrestrial broadcasts. Thus, Internet
radio and all digital music performance services suffer a significant copyright royalty disadvantage compared to our competitors in broadcast radio. I hope this imbalance is not permanent, but I appreciate political reality and the remote possibility
at bestthat this Subcommittee will reconsider the inequity between my powerful
friends in traditional terrestrial radio and their new online competitors as it respects sound recording copyright royalties.
What is perhaps more surprising and unfair is how the law advantages cable and
satellite radio, even when those entities compete against us on our own turfin the
broadband marketplace. This cannot be what Congress intended when it created or
amended the performance right statute, and we are pleased that the Copyright Office has suggested that the Committee review the issue.
a. Background: Though Imposed Only Upon New Digital Music Services, the 1995
Act Balanced the Performance Royalty With Reasonable Protections.
Understanding todays imbalance in royalty-setting standards requires a brief review of the history of the performance right.
In 1995, when enacting the first sound recording performance right, the legislative history documents Congresss dual and balanced intentions: to protect and promote the interests of copyright owners and recording artists and to promote the development of new technologies. Congress wished to provide a new right and royalty
(benefiting creators and copyright owners), to promote efficient collective licensing
processes (benefiting licensors and licensees), and also to incorporate the lessons of
decades of antitrust controversy that had confronted similar collective licensing efforts, most notably of ASCAP and BMI.
After consulting with the Antitrust Division of the Department of Justice, Congress incorporated into the Digital Performance Right in Sound Recordings Act several provisions that sought carefully to balance the goals of enabling efficient licens-

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00050

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

47
ing processes and ensuring that a new recording industry licensing cooperative
would not have unrestrained pricing power. The provisions that furthered these
goals included (a) a statutory license (rather than an exclusive right) to ensure the
availability of blanket licenses to play music over new digital services; (b) an antitrust exemption to promote efficient license negotiations; and (c) the availability of
a royalty-setting arbitration, or CARP, as a backstop or safeguard to ensure that
above-market royalties would not be imposed on licensees.
Integral to the safeguard provided by the CARP process were the standards and
factors to be used by the arbitrators to determine the appropriate rates and terms
for the new statutory license. In 1995 Congress applied the traditional standards
set forth in the Copyright Act at 17 U.S.C. 801(b)(1), that balance the interests
of licensors, licensees, and the public interest:
(1) To make determinations concerning the adjustment of reasonable copyright
royalty rates[which] shall be calculated to achieve the following objectives:
(A) To maximize the availability of creative works to the public;
(B) To afford the copyright owner a fair return for his creative work and the
copyright user a fair income under existing economic conditions;
(C) To reflect the relative roles of the copyright owner and the copyright user
in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for
their communication;
(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.
This standard was applied in the first CARP under the 1995 Act, and yielded a
royalty rate that applied to the three then-existing cable and satellite digital music
services. Today, this royalty standard continues to apply to cable and satellite radio
services.
b. 1998 Amendments Unraveled the 1995 Balance By Stripping Away the Acts
Original Protectionsbut Only for the Newest Digital Music Services: Internet
Radio.
In 1998, Congress again considered how to appropriately balance creative and
new media interests, and clarified the applicability of the sound recording digital
performance right to Internet webcasters. At that time, webcasting was in its embryonic stages and new business models were just beginning to develop. DiMA companies were appreciative of Congress intent and accepting of the new royalty obligation that would benefit creators, so long as it was competitively fair and set at a
reasonable level so as to permit the continued rapid growth of this nascent industry.
To ensure the appropriate balance between licensing efficiency and anticompetitive risk, Congress relied again upon the same three elements: a statutory license,
an antitrust exemption, and a CARP safeguard. This time, however, at the RIAAs
urging and without consulting with the Department of Justice, Congress adopted a
different standard to be applied by the CARP to determine statutory license rates
and terms:
In establishing rates and terms for transmissions by eligible nonsubscription services and new subscription services, the copyright arbitration royalty
panel shall establish rates and terms that most clearly represent the rates
and terms that would have been negotiated in the marketplace between a
willing buyer and a willing seller. In determining such rates and terms, the
copyright arbitration royalty panel shall base its decision on economic, competitive and programming information presented by the parties, including
(i) whether use of the service may substitute for or may promote the sales
of phonorecords or otherwise may interfere with or may enhance the sound
recording copyright owners other streams of revenue from its sound recordings; and
(ii) the relative roles of the copyright owner and the transmitting entity
in the copyrighted work and the service made available to the public with
respect to relative creative contribution, technological contribution, capital
investment, cost, and risk.
In establishing such rates and terms, the copyright arbitration royalty
panel may consider the rates and terms for comparable types of digital
audio transmission services and comparable circumstances under voluntary
license agreements negotiated under subparagraph (A).

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00051

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

48
17 U.S.C. 114(f)(2)(B) (emphasis added). Unfortunately, the legislative history offers no explanation or any reasons why Congress adopted this different standard for
Internet radio, and little guidance as to how the standard is to be applied:
The test applicable to establishing rates and terms is what a willing buyer
and willing seller would have arrived at in marketplace negotiations. In
making that determination, the copyright arbitration royalty panel shall
consider economic, competitive and programming information presented by
the parties including, but not limited to, the factors set forth in clauses (i)
and (ii).
H.R. Rep. No. 105796, 105th Cong., 2d Sess. at 86.
Given the care that Congress undertook in 1995 to prevent excessive pricing
power by antitrust-exempt licensors (including several written consultations with
the Antitrust Division of the Department of Justice) and to ensure that the CARP
would serve as an appropriate backstop, Congress surely could not have intended
that this new standard be more susceptible to market power-based pricing by collective licensors. Unfortunately that is precisely what the arbitrators concluded in the
first CARP under this new standard.
In their decisional Report the arbitrators in the first CARP under the willing
buyer-willing seller standard recount in some detail how the RIAA adopted a takeit-or-leave-it licensing approach with a limited group of impecunious webcasters
likely to accept whatever deal was offered them, in order to create a body of evidence of overpriced agreements and then argue to the arbitrators that only these
executed agreements should be permitted as evidence of willing buyers and willing
sellers. The arbitrators found that the RIAA devoted extraordinary efforts and incurred substantial transactional costs to negotiate agreements only with minor
webcasters that promised very little actual payment of royalties in returnsacrificial conduct mak[ing] economic sense only if calculated to set a high benchmark
to be later imposed upon the much larger constellation of [Internet radio] services.
Id. at 5051. Illustrating the strength of the evidence supporting this conclusion, the
arbitrators specifically found that RIAAs effort to deny this manipulative intent
lacked credibility. Id. at 50.
More important to this Subcommittee than the RIAAs behavior is that the strategy ultimately was successful because the arbitrators concluded that their hands
were tied, believing that the willing buyer-willing seller statutory standard required
them to consider only a few executed agreements, but not the relevant experience
of thousands of services with music licensing royalty rates. The arbitrators, therefore, ignored compelling evidence that would have led to a far more reasonable and
justifiable rate if they could have considered the four factors utilized in the traditional CARP standard found in 17 U.S.C. 801(b), or even if they could have considered fair market value, the CARP standard utilized in cable television royalty proceedings.
This conclusion caused the Panel to adopt rates based on what the arbitrators
conceded were above market benchmarks obtained as a result of RIAAs singleseller market power and its take-it-or-leave-it licensing approach, and to ignore
the most compelling and analogous evidence in the casethe rates paid by thousands of radio stations and webcasters to composers, lyricists and publishers to perform their copyrighted music.
Setting aside whether the arbitrators incorrectly applied the willing buyer-willing
seller standard, DiMA urges the Subcommittee to consider that the courts most experienced in the consideration of collective licensing agreementsthe ASCAP and
BMI rate courtsconsistently have rejected evidentiary use of voluntary agreements
entered into at the inception of an industry, because such agreements generally reflect extraneous factors such as the desire to avoid or settle litigation, and rarely
evidence fair market value. See, e.g., United States v. ASCAP; Application of
Showtime/The Movie Channel Inc., 912 F.2d 563, 57982 (2d Cir. 1989). These very
concerns underlie provisions in the most recent ASCAP consent decree which preclude agreements entered into during the first five years of licensing music users
in a new industry as evidence of a reasonable royalty. In support of this provision
the Department of Justice Antitrust Division explained that [new] music users are
fragmented, inexperienced, lack the resources [to litigate over rates] and are willing
to acquiesce to fees requiring payment of a high percentage of their revenue because
they have little if any revenue. See United States v. ASCAP, No. 411395 at 13
14 (S.D.N.Y. June 11, 2001). See Memorandum of the United States in Support of
the Joint Motion to Enter Second Amended Final Judgment, at 35, United States
v. ASCAP. Thus, the very type of agreements that courts and the Department of
Justice have rejected as evidence of fair value were the only agreements that the

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00052

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

49
arbitrators believed the law allowed them to rely on using the willing buyer-willing
seller standard.
Consequently, by requiring arbitrators to ignore long-established music performance license rates, by requiring reliance on inherently unreliable licenses intended
by RIAA to yield above-market rates, and by eliminating the concept of fairness,
balance or fair market value from the rate-setting standard, the willing buyer-willing seller standard resulted in a royalty rate for the performance of sound recordings by Internet radio that is:
more than three times higher than the rates historically paid for public performances of compositions, and
50 percent higher than sound recording performance royalty rate paid by
cable and satellite radio.
There is no principled basis why digital media services should be favored or
disfavored relative to one another merely because they transmit performances to the
consumer using different technologies. There is also no principled basis why the recording industry utilizes the traditional four-factor 801(b) rate-setting standard
when it is a licensee in proceedings to set songwriters royalties, but benefits from
the more favorable willing buyer-willing seller standard when it is licensor in the
Internet radio context. DiMA respectfully asks the Subcommittee to rectify these imbalances. We note that Register of Copyrights Marybeth Petersin responding to
a written question from Chairman Smith following a 2003 hearing on the issue of
CARP reformalso has suggested that the Subcommittee reconsider the rate-setting
standards that apply to essentially competitive digital radio services.
a. The Law May Disfavor Internet Radio Even Against Digital Music Competitors
That Compete Directly in the Broadband Marketplace.
Recently DiMA has learned that Music Choice, a cable radio provider that is defined as a pre-existing service under Section 114, and therefore has its royalties
set pursuant to the traditional 801(b) standard rather than the willing buyer-willing
seller standard, is competing directly against DiMA companies and broadcasters in
the broadband radio marketplace, but Music Choice is not paying royalties equivalent to those paid by online radio or broadcaster simulcasters.
Music Choice is utilizing the broadband connections of its cable partners such as
Comcast to essentially webcast its traditional cable music channels plus additional
new channels to cable broadband subscribers. This may be a brilliant idea that
earns Music Choice and its cable partners lots of money. But it highlights the unprincipled foundation of a performance rights law that enables two companies to
provide competing subscription broadband music services, but requires them to pay
different royalty rates to creators and copyright owners. This law is unbalanced
with regard to the competing services, and also is unbalanced with regard to copyright owners and performing artists.
The Music Choice example (or loophole if Music Choices legal position is correct)
highlights DiMAs core policy principlethat copyright law should be technologically
neutral so that all competing media services pay the same royalty rates and compete on a level playing fieldand highlights the prejudice and disparities that result
when the law does not follow that basic principle.
III. CONTRARY TO CONGRESSS INTENT, THE 1998 AMENDMENT TO THE INTERACTIVE
SERVICES DEFINITION HAS PROMOTED LITIGATION RATHER THAN INNOVATION.

Congress enacted the DMCA statutory Internet radio license to promote the
growth of Internet radio as an innovative, competitive medium. Whether a particular Internet radio service qualifies for the statutory license is dependent on several statutory factors, most notably that it:
complies with programming restrictions, e.g., that limits the number of songs
of a single artist or album that can be played in a 3-hour period, and
is not interactive as defined in the statute.
The interactive service exclusion was first included in the1995 Act, to ensure
that statutory performance licenses were not available to on-demand music services that threatened to directly displace sales of pre-recorded music. The DPRSRA
defined an interactive service as one that enables a member of the public to receive, on request, a transmission of a particular sound recording chosen by or on
behalf of the recipient. This definition was clear, and there was never any question
whether a service qualified or did not qualify for the statutory license on the basis
of whether it was or was not interactive. In the statute Congress even confirmed
that a consumers ability to request a song was not enough to make a service inter-

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00053

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

50
active, inasmuch as broadcast radio and other media regularly perform consumer
requests.
In 1998 Congress amended this clear, bright-line definition of interactive service. Unfortunately, the revised standard makes it much less certain whether a service qualifies for the statutory license. The amended law defines an interactive service as
one that enables a member of the public to receive a transmission of a program
specially created for the recipient, or on request, a transmission of a particular
sound recording, whether or not as part of a program, which is selected by or
on behalf of the recipient.
As in the original definition, the 1998 definition continues with a safe harbor:
The ability of individuals to request that particular sound recordings be performed
. . . does not make a service interactive, if the programming on each channel of the
service does not substantially consist of sound recordings that are performed within
1 hour of the request or at a time designated . . . by the individual making the
request.
Relying on this safe harbor and their interpretation of the interactive restrictions, several DiMA companies developed Internet radio services in 1999 and 2000
that permitted varying levels of consumer influence. Consumer influence features
included the ability to rate songs, artists and albums, and to request that specific
songs or artists recordings be performed (but not at a specific time or in any specific
order). Recording companies complained that these services did not qualify for the
DMCA license and threatened to sue. In an effort to clarify the situation DiMA petitioned the U.S. Copyright Office for regulations interpreting the definition. The
Copyright Office declined to propose regulations, or to specify specific features that
individually or in combination would disqualify programming from the DMCA license. The Copyright Office did, however, affirm unequivocally that services can incorporate consumer influence in their programming without making the service
interactive.
In May, 2001, several recording companies filed a copyright infringement suit
against Launch Media (now Yahoo!), contending that the services consumer-influence features disqualified it from the statutory license. In a second effort to resolve
the issue without rancor, DiMA filed a declaratory judgment action on behalf of the
Internet radio industry, but that court declined to hear the action and referred it
instead to the court hearing the pre-existing infringement lawsuit.
In a follow-on action the recording industry also sued several additional DiMA
companies, seeking again to disqualify consumer-influenced radio from the statutory
Internet radio license. Some DiMA companies settled by agreeing to pay extraordinarily high royalties and maintain some consumer influence features; others
agreed to eliminate all consumer influence features; and others went out of business.
As the Register of Copyrights determined, Congress clearly expressed its intent
that some amount of consumer influence be a part of basic Internet radio and compliant with the statutory license. The recording industry, through its licensing behavior and public statements has agreed. However, through its litigation and conflicting public statements, the recording industry has also proffered more restrictive
interpretations of the definition of interactive and intentionally fostered an uncertain, litigious environment.
For example, the RIAA has entered into statutory licenses with services that offer
programs based upon listener preferences and with services that allow users to skip
songs and pause songs, but has sued other services offering similar functionality.
In fact, strikingly, in the litigation that continues today, the last remaining recording industry plaintiff has asserted that non-interactive webcasts are not permitted
to allow any level of individual consumer influence over a program. This assertion
clearly conflicts with the RIAAs own licensing practices and the Copyright Office
decision, and suggests that to be non-interactive a service must replicate the experience of broadcast radio. This would be an absurd result, as it would prohibit
webcasters who already operate under significantly more restrictions than broadcast
radio to utilize any functionality of the digital medium, absent direct licenses from
the recording labels that would cause even greater anticompetitive impact than does
the statutory license.
DiMA believes that the recording industry is taking unfair advantage of the unfortunate uncertainty that was created by the 1998 amendments to the definition
of interactive service, in pursuit of grossly higher royalties for Internet radio services use of any consumer influence features, notwithstanding clear Congressional
intent and the Register of Copyrights decision to the contrary. Moreover, the higher
royalties for so-called interactive services (or for services that do not have million-

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00054

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

51
dollar litigation budgets) will not have to be divided evenly with recording artists
as they will fall outside of the statutory license.
As DiMA has testified in other contexts, in a strict liability environment with high
statutory damages, uncertainty chills innovation and can destroy the entrepreneurial spirit. We urge the Subcommittee to clarify the definition of Internet radio
interactivity, or to revise the statute to delegate regulatory authority to the Copyright Office so that it periodically can re-define interactivity in light of newly developing services and market conditions. DiMA companies want to focus our energy
on developing exciting royalty-paying products and services that combat piracy,
rather than on lawyers and litigation.
1. Although Broadcasters Have a Copyright Exemption to Utilize
Ephemeral Reproductions of Compositions In Support of Broadcast
Performances, Webcasters Do Not Have An Analogous Exemption for
Ephemeral Reproductions of Sound Recordings And Are Required
to Pay Significant Royalties for Such Copies.
As the U.S. Copyright Office pointed out in its August 2001 Section 104 Report
to Congress, there is an imbalance between the legal and financial treatment
of so-called ephemeral copies of compositions in the broadcast radio context,
and similar copies of sound recordings in the Internet radio context. This imbalance in favor of sound recording copyright owners disadvantages Internet
radio services, as well as broadcast radio simulcasters.
Since 1976 broadcast radio has had a statutory exemption, and thus royalty-free
authority, to make reproductions of copyrighted compositions so long as the
reproductions remain within their possession and are used solely to facilitate
licensed royalty-generating performances of the same music. Internet radio
services also require the same ephemeral recordings to enable their webcasts;
but whereas a typical radio station requires only one copy to transmit over
the air, webcasters need copies in different formats in order to let consumers
listen using different software players (such as RealPlayer or Windows Media
Player) and at different bandwidth speeds (for dial-up and broadband access).
Although each one of the webcasters ephemeral recordings functions exactly
the same way as the copies exempted for radio broadcasters, recording companies persuaded Congress to provide it with a statutory license for the same
ephemeral recording for which terrestrial radio stations are exempt. The
CARP and Librarian of Congress awarded the recording industry nearly a 9
percent bonus on top of the performance royalty for the making of these
ephemerals.
In the Section 104 Report, the U.S. Copyright Office noted this imbalance between
the exemption that is provided broadcasters for composition ephemerals but
that is not provided to broadcasters or webcasters for sound recording
ephemerals. The Copyright Office said that the compulsory license for sound
recording ephemerals, found in section 112(e) of the Copyright Act, can best
be viewed as an aberration and that there is not any justification for the
imposition of a royalty obligation under a statutory license to make copies
that have no independent economic value and are made solely to enable another use that is permitted under a separate compulsory license. Section 104
Report, p. 144, fn. 434. The Copyright Office urged repeal of section 112(e);
DiMA agrees.
2. The Section 114 Programming Restrictions are Overly Rigid, and Prevent Internet Radio from Engaging in Traditional Broadcast-Style
Practices That Do Not Undermine the Recording Industrys Interests.
Another disparity between the rights of broadcasters versus the restrictions imposed upon webcasters is created by the programming controls imposed by
Section 114, namely, the prohibitions against advance announcements and
the sound recording performance complement. See 17 U.S.C. 114(d)(2)(c)(i)
and (ii). While intended by Congress to limit the digital public performance
license to radio-like activities, in reality these provisions prevent Internet
radio from engaging in many of the most common practices of radio broadcasters that have proved, over decades of experience, to promote rather than
harm the interests of the record labels and performing artists.
For example, radio stations typically announce specific songs that are going to be
performed either next or at an unspecified time in the near future, as an inducement to keep listeners tuned to their stations; Internet webcasters cannot. Or, when a famous artist such as Ray Charles passes away, radio stations have complete latitude to pay tribute by playing extended blocks of the
artists work; the sound recording performance complement limits the ability
of Internet radio to honor the artist to no more than two songs consecutively,
and four songs total over a three-hour period. There is no evidence, however,

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00055

Fmt 6633

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

52
that the broadcasters practices have harmed the record industry, or that
webcasters adoption of these practices would be harmful. Given the clear promotional benefits of webcasting to the recording industry and performing artists, there is no reason why webcasting should not also be permitted this additional programming latitude to better attract and maintain its audience
against broadcast competition.
These restrictions, if they ever served a meaningful purpose, became even more
anachronistic in the age of personal computers as media centers. Any consumer can use the same personal computer to listen to webcasting or, by
merely installing a PC card with an FM tuner (or, soon, a digital radio tuner),
to broadcast radio. Soon it will not even be necessary to use a PC card, since
software-based radio tuners are being developed and tested.
Under current law, nothing restricts that PC from digitally recording broadcasts
on a hard drive either temporarily or permanently. And nothing prevents PCs
from redistributing those recordings over the Internet utilizing peer-to-peer
software. Yet, even though the very same PC can be used to either listen to
the radio or to webcasting, only webcasting has unfairly been saddled with
programming restrictions. Indeed, webcasters even have additional obligations under Section 114 that broadcasters do not have, such as to identify all
songs they perform, to utilize available technological means in their transmission technologies to prevent direct recording of the webcast signal, and to
prevent automatic scanning and switching of channels to find particular
songs.
The Section 114 programming-based restrictions cannot be justified, particularly
in light of the introduction of digital FM radio and technological convergence.
If Congress perceives no danger from what consumers can do with broadcast
radio on a PC, then there is similarly no danger with respect to webcasting.
Therefore, the sound recording performance complement and the restrictions
on advance announcing should either be eliminated or substantially relaxed,
as a matter of fairness, logic and parity.
3. CARP Reform Legislation Accomplishes Much, But Additional Change
is Needed to Ensure Balance in Sound Recording Performance Rights
In recent years this Subcommittee has responded several times to promote the
business and legal environment of legitimate online music services. The sound
recording performance right amendments provided a needed measure of stability to our industry in 1998, and the Small Webcasters Settlement Act was
a lifesaver for many small webcasters.
Additionally, DiMA is most appreciative of the Subcommittees efforts and accomplishments with regard to H.R. 1417, and we are hopeful that the Senate will
soon approve this bill and that it will be signed into law by the President.
However, as Chairman Smith and Ranking Member Berman stated clearly as
that legislation was being considered, H.R. 1417 only corrects procedural
flaws in the CARP system, and not the substantive flaws that are equally important.
DiMAs goal with regard to the sound recording performance right is the same
goal we have urged beforethat the law balance the interests of copyright
owners, creators and users, and that all media companies be treated alike regardless of whose business was created first or what technology a service
chooses to utilize.
DiMA hopes the Subcommittee will recognize that consumers and creators should
be indifferent, to the technological means by which their music or other entertainment programming is delivered, so long as the content is of a high quality, is reasonably priced, is secure against piracy, and is accounted for and
reasonable compensation is paid. Rather than focusing on fiber versus satellite versus copper wire versus coaxial cable, the law should ensure fair payment based on the value of the work and the useand then the law will be
well-balanced.
Thank you for the opportunity to testify today.

Mr. SMITH. First, it seems to me that under the umbrella of the

general subject of our hearing today are half a dozen substantive
issues. I dont know if we are going to be able to address them all.
It is rare that we would have so many issues that come up, and
it will probably be the future, probably next year before we get to
all of them, but at some point they do need to be addressed.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00056

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

53
Mr. Carson, in your testimony you implied a fairly bleak future
for performing artists. You did not use of the word that is of interest to a lot of us, and that is piracy, but I think that is what you
meant in some cases.
How great a threat do you think that is to performing artists?
Mr. CARSON. Piracy is a very great threat to performing artists,
depending on how you define piracy, of course. But just look at
what is happening with peer-to-peer services right now. They pose
a major threat to recording artists and record companies.
Beyond that, talking about other kinds of conduct that are possible now or will be possible in the future, given the roll-out of new
technologies which do all sorts of wonderful things for the consumer, but they may not be so wonderful for the recording artist
or record company trying to make a living off the recordings.
Mr. SMITH. Mr. Halyburton and Mr. Potter, do you agree with
what Mr. Carson said; and if you agree that there is a real threat,
who should be most responsible for preventing the misuse that Mr.
Carson talks about?
Mr. POTTER. Mr. Chairman, that is a good question. The business
of many DiMA companies is the distribution of sound recordings by
sale, by subscription, by performance. So DiMA is wholeheartedly
aligned with the RIAA, with performers against piracy.
We are very sympathetic to these technological concerns, and as
Mr. Marks has referred to, there are content protection standards
in the DMCA today, standards that we agreed to when the DMCA
amendments were developed.
Mr. HALYBURTON. In terms of broadcasting, we believe that
broadcast and even high definition broadcast do not represent a
threat. Our content is not presented in a way that makes it kind
of suitable content for the kind of process that is being talked
about. The music is played tightly together, the disk jockeys talk
over the fronts of the recordings and the backs of the records.
There are musical drop-ins.
It is not for radio stations just a back-to-back music situation
like it is on the Internet for webcasters. It is really an entirely different kind of content and product.
Mr. SMITH. What are the odds, Mr. Halyburton and Mr. Marks,
of you all, that is NAB and RIAA, reaching some kind of consensus
on the subject of content protection?
Mr. MARKS. We have had preliminary discussions with the National Association of Broadcasters and look forward to further discussions to work cooperatively and to coordinate on finding a resolution to this problem.
We would welcome further participation from Mr. Halyburtons
company and other broadcasters to sit down with us and figure out
the resolution here in a way that does not hold up HD radio. That
is not our goal. We are excited by the opportunities that are presented by digital radio and do not want to interfere with the rollout of that to consumers.
Mr. SMITH. Mr. Halyburton, do you agree with that?
Mr. HALYBURTON. I agree with that. It is important that we not
impair the roll-out of HD. We too face a lot of new technologies and
new services, and we need to move aggressively into that area.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00057

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

54
Mr. SMITH. Another question for you, Mr. Halyburton, and this
is contracts with the performing rights organizations like ASCAP
and BMI that already require broadcasters to report the songs they
play. Given that, why do you consider it to be more difficult to report this type of information in order to qualify for the benefits
under the 114 and 112 licenses?
Mr. HALYBURTON. I believe if we stay somewhere near where we
are now with the interim regulations, where we are talking about
title, artist and the name of an album, those are the kinds of fields
of information that are readily available to us and could be reported. Just in the interim regulations, we would be reporting a far
greater number of times and a far greater amount of information
to the RIAA as a result of that. So we believe these interim regulations are, for the most part, workable.
What we really worry about is if we go beyond that and increase
the frequency or the amount of fields, it will be very difficult to
keep up with that.
Mr. SMITH. Mr. Potter, what is DiMAs response to the Copyright
Office and also to NABs suggestion that ephemeral copies have no
independent economic value and ought not to be subject to a separate royalty payment?
Mr. POTTER. DiMA believes that the full value of our activities
in the Internet radio space is found in the actual performance and
that the performance royalty should cover essentially what we are
doing.
DiMA also believes that the law should be technologically neutral
and where broadcasters and their over-the-air activities have an
exemption from ephemeral copies, there is a reason for it, and we
should have equal exemptions for ephemeral copies vis-a-vis music
publishing royalties, and we should also have equal exemptions or
equal obligations with regard to sound recording royalties.
Mr. SMITH. Thank you.
Without objection, I am going to yield myself one more minute
since we will only have one round of questions.
This question is in an effort to run some interference for Mr.
Boucher. If you all could very briefly respond to the point he made
which is, we ought to treat regular broadcast and the streaming as
virtually the same when it comes to royalties.
Mr. Carson.
Mr. CARSON. We agree. Broadcasters should pay just like
webcasters should.
Mr. HALYBURTON. We believe local broadcasters should be exempt in their local area from any fees. It is the same. It is over
the air, it is over the Internet. It is really the same service.
Mr. MARKS. We believe they should be treated the same.
It is worth noting that the United States is the only country with
sophisticated copyright laws that grant such as exemption, and
that exemption is all the more extraordinary when you look at the
facts in the marketplace today, where our industry is being devastated by piracy and is in need of more revenue streams, not less.
Mr. SMITH. Okay.
Mr. Potter.
Mr. POTTER. Mr. Chairman, if this is the only round of questioning, I should thank you for your scheduling indulgence. Par-

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00058

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

55
ticularly on behalf of my bride, who appreciated it at least as much
as I did.
In response to your substantive question, I think there are two
parts here. At least with regard to digital radio, Internet radio,
cable radio and satellite radio, it seems unfair we are paying 50
percent higher royalties than satellite radio and cable radio.
With regard to broadcast radio, we have a standing principle
that all technologies, all media, should be treated the same. That
is obviously a harder political effort, and we welcome that discussion; but at least in the interim, we would prefer, those of us in
the digital space, to be treated the same.
Mr. SMITH. The gentleman from California, Mr. Berman, is recognized for his questions.
Mr. BERMAN. Thank you, Mr. Chairman.
It is good to know at least three of the four witnesses agree with
Mr. Boucher that there should be a performance right for all kinds
of broadcasting and streaming.
Section 114 has languageand this is really for Mr. Markshas
language about accommodating and not interfering with digital
rights management. Has that language aided in protecting piracy
or the technical measures being utilized; and if not, why not?
Mr. MARKS. In addition to that statutory license condition, there
is another statutory license condition, as well, that requires
webcasters to implement protection measures in technologies that
they are using. At the time that the legislation was passed, we
thought that adequately addressed the content protection needs we
had.
As it has turned out, the content protection within the streaming
technologies that are being used by webcasters and simulcasters
are not effective against the literally hundreds of stream-ripping
technologies that exist. Therefore, we believe giving some teeth to
those conditions so that effective technologies are required to be
used by webcasters and simulcasters should be considered by Congress.
Mr. BERMAN. Given your answer, then, I would like to throw out
sort of just at least a hypothetical grand bargain, which is the
sound recording complement, from what you said, really is not
none of these provisions are achieving the goal of preventing piracy; and it is a problem for the licensees, such as the broadcasters
and webcasters. You are complaining of different aspects of things
you have to do which are not achieving the goal that the recording
companies and the recording artists wanted to achieve.
So would it be a fair trade-off to remove the sound recording
complement requirements and, at the same time, strengthen the
requirements of copy protection and perhaps shift that cost to the
webcasters? In that situation, the DMCA would be able to be a
backstop for one who is attempting to circumvent the anticopying
technology; the copy protection would aid in the interoperability of
the standards when accounting for different media players, like
Microsoft or Real Networks, and would possibly prevent a future
problem with the copying from HD radio. I would be interested in
the panels reaction to that kind of a trade-off.
Mr. CARSON. It is certainly worth thinking about. One part which
I would need to give more thought to is the part that would shift

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00059

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

56
the cost of that to the webcasters and broadcasters. I am not sure
who should be bearing that cost.
One could argue that record companies need to be thinking about
that protection, not just on the Internet, so maybe it is a cost they
are already going to bear. But I would agree that the current provisions in section 114 with respect to technological protection are
pretty weak. There is a lot to be said for doing something to
strengthen those, and if the trade-off is you strengthen those and
you get rid of the complement, we would want to hear what the interested parties have to say, but it is well worth thinking about.
Mr. POTTER. Let me start by saying that we have never been approached by the recording industry to discuss strengthening these
technological protection measures, either as a matter of negotiation
or as a matter of law, so this is a new subject.
We clearly discussed it in 1998 leading up to the DMCA legislation, and we were all fairly comfortable that there were specific
copy and no-copy possibility flags or bits in streaming technologies
that our companies were certainly interested in using. DiMA companies are not interested in creating radio programming that people can copy and redistribute.
As for a compromise or the grand trade-off, I think we are always interested in discussions that will inhibit piracy, and we are
always interested in freeing up some regulatory restrictions. We
might prefer to trade off willing buyer-willing seller for technological protection measures, but if there is going to be a grand negotiation, we are looking forward to working with the Subcommittee and the stakeholders.
Mr. BERMAN. Let me ask one additional question. The broadcasters and DiMA both say it is unfair to pay a separate license
fee under section 112 when you need to make the multiple ephemeral copies to operate under the section 114 license and you claim
there is no independent economic value.
Would it therefore makes sense to have that determination made
in the course of establishing the 114 webcasting rate? In other
words, do away with that provision of section 112, but allow a 114
CARP to adjust the rate if, and only if they find there is a value
in certain aspects of making more copies to facilitate webcasting?
Mr. HALYBURTON. Our big problem with the CARP and the whole
process of it is the willing buyer-willing seller does not work, and
then the sheer cost for both sides of litigating that and going
through the process. It ends up, we end up paying more in legal
fees than we would have paid in royalties. While we do not like the
fees that we operate under today, and yes, they were negotiated,
we did not have much choice because a CARP would be a far worse
process.
The CARP process is clearly flawed. This Committee has taken
steps to try to work on that, and there is more that needs to be
done.
Mr. BERMAN. But what aboutI understand your answer, although it did not focus on the specific issue. Wherein ephemeral
copies have no real inherent value, I think DiMA makes not a bad
case, why are we paying that? If that is the test, why not fold that
into the 114 process, whether through negotiations or the CARP,
too, I guess.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00060

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

57
And let me ask, Mr. Potter, your reaction.
Mr. POTTER. As a matter of practice, Mr. Berman, if we review
the transcripts of that CARP, it was one king of a CARP, we would
find that very, very little attention was actually paid to the 112(e)
royalty and the value of those ephemeral copies. All of the testimony and all of the witnesses focused on the value of the performance.
[11 a.m.]
Mr. POTTER. It was only in the very late stages that people threw
a few quick arguments into the proceedings because they realized
that the CARP would have to make a separate decision about
whether the 112 ephemerals had any value. As a matter of practice, I think the CARP almost went there and then realized they
had to make a decision, so they essentially threw in a 10 percent
kicker.
We are not uncomfortable with saying the performance royalty
should compensate for all uses of the sound recording associated
with that performance, and essentially that glosses over the issue,
but including all the reproductions of the sound recording, all the
cache copies, all the network copies, all the formats. Ultimately, we
think theres a fair argument that the value is in the performance,
and whatever is associated with that, we are happy to pay our fair
share.
Mr. BERMAN. I am told that in certain situations, to get it faster
and better, you need more ephemeral copies than in other situations. Some ephemeral copies are just a requirement to actually do
the act, but others actually enhance the value.
Mr. POTTER. Youre right, but they enhance the value of the performance, and therefore, if the value of the performanceif the
consumer receives a higher-quality performance because more
ephemerals are out there in the network, then the value is still in
the performance, and the advertising dollars or the subscription
fees are associated with the performance. So you might be correct
that if there are more ephemerals cached out in the network, you
will get a higher-valued performance.
For the arbitrators to sit there and say, oh, my goodness there
is an Intel server farm over here, and there is a Qwest server farm
over there, and theres cache copies flying around, and how much
are they worth is a very hard thing. It is much easier to say, how
much is the performance being valued at, what are the advertising
rates, what are the subscription rates, and it is a much more tangible economic argument. So I think we would agree with you generally.
Mr. MARKS. Can I give a brief answer on that? I think some of
this is a little bit of semantics. The question is whether there is
an independent economic value, whether you roll that into a performance royalty or you have a separate statutory license is really
a different question. And as a practical matter, the arbitrators for
the performance did address at the same time the ephemeral issue
and found there should be an additional fee. And in the negotiations that we had in the marketplace last year, there was one fee
those two fees were rolled into one for purposes of the fee that exists today.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00061

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

58
But there is a misperception, I think here, that there is no economic value. In truth, there are a variety of reasons why there is
economic value for those additional copies. Mr. Berman touched on
one of them, making additional copies that could be on a distributed network architecture so that the reliability of streams and the
user experience is better, therefore enabling a particular Webcaster
to attract more listeners. Same thing for making available different
formats to give the consumers choice so that one Webcaster versus
another would be attracting more listeners to its site. All of those
are examples of things that may lead somebody to make additional
ephemeral copies and, therefore, would be evidence of independent,
economic value.
Mr. SMITH. Mr. Halyburton, you would like to respond to Mr.
Bermans question?
Mr. HALYBURTON. Broadcasters, we just need one copy. We need
it for our on-the-air performance, and it happens to be the same
on-the-air performance that ends up on the Internet.
Mr. SMITH. The gentleman from Virginia Mr. Boucher.
Mr. BOUCHER. Thank you very much, Mr. Chairman, and I also
want to thank you for using some of your time to inquire into one
of the issues I raised. I appreciate very much your doing that, and
I think you have exhausted that particular point thoroughly, so I
will move on to other matters.
Let me at the outset just inject a bit of a note of caution about
the idea of applying a broadcast flag to digitalterrestrial radio.
I wouldnt want Members of the Committee to make the underlying
assumption that this is going to be accepted without debate or controversy, and that the only question is what do we trade it for, because I think this is going to be extraordinarily controversial in
and of itself. And it implicates not only broadcasters and the RIAA,
but it also implicates the manufacturers of equipment and ultimately consumers of broadcast radio services.
And so the debate, if this proposal is put forward in a serious
way, I think will be extensive, and it will not be something that
is easily resolved in and of itself, and I wanted to note that at the
outset.
Mr. Carson, I have a couple of questions for you. Fairness and
reasonableness is the standard that guides royalty rate-setting
with respect to the delivery of recorded music over satellites, over
cable, and even when the recording industry is a licensee under the
mechanical performancethe mechanical royalty. But the willing
body, willing seller standard governs rate-setting under
Webcasting, and experience has shown us that that produces a
higher rate. So there is a, in my view, discriminatory treatment
with regard to the Internet as compared to these other means of
delivering the same service.
When Mrs. Peters, the director of your office, testified before this
Subcommittee in a previous hearing, Chairman Smith asked her if
she thought that there should be harmonization of the standard for
rate-setting across these various mediums given the fact that essentially the same service is delivered, and the only thing that differs is the platform upon which the service is delivered. And her
answer to that question was yes, that she believed that the same

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00062

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

59
standard should apply. Now, I dont think she went so far as to say
what that standard should be.
My question to you is this: Does the copyright office stand by
that position today? Do you believe that we should have the same
rate-setting standard with respect to all of the platforms over
which recorded music is delivered for these purposes? And if you
do stand by that recommendation, would you urge the Subcommittee to take action to harmonize that standard?
Mr. CARSON. You didnt get to the hard question.
Mr. BOUCHER. I am going to get to it in a moment.
Mr. CARSON. The answer to that two-part question is yes.
Mr. BOUCHER. Now let me get to the hard one. You have seen
these two standard operations in operation. The fairness and reasonableness standard has, in my view, withstood the test of time.
It is even enjoyed, as I indicated, by the recording industry itself
when it is in the position of being a licensee and is paying royalties
to songwriters and music publishers. But the recording industry is
in a very different position when it is a recipient of royalties, and
in that instance enjoys, from its perspective, a far more favorable
willing buyer, willing seller standard. The way Im posing the question, you might guess what my answer to it is, but I would like to
hear yours. Which standard should we adopt once we go to parity
and uniformity?
Mr. CARSON. I dont think the office has come to an official position on that, but we are aware of the issue. I spoke to the Register
about it yesterday, and probably the best way to state it is that it
would be the present inclination of the office to support a fair market value standard, which is probably a lot closer to and, frankly,
probably tantamount to a willing buyer and willing seller standard.
And the reason for that is simply that compulsory licenses are exceptions to the normal rule of exclusive rights, and the reason you
have compulsory licenses is generally
Mr. BOUCHER. My time is limited, but I have an important question about that. How do you establish a fair market value? You are
sort of endorsing by implication the willing buyer, willing seller
test when the market itself is broken, when you really only have
one seller, and that seller of the product has an antitrust exemption given by this Committee so it can collectively sell its product
on the market. There is no competition in the offering of this service. You wind up with a take-it-or-leave-it proposition. Why in the
face of that market structure which is inherently nonmarket-oriented would you suggest that willing buyer, willing seller or fair
market value should prevail?
Mr. CARSON. Well, to say that fair market value is the standard
is not necessarily to say that in order to determine what the fair
market value is, you look to a particular agreement that might
have been arrived at under those circumstances.
Mr. BOUCHER. How would you get to it?
Mr. CARSON. I think there are a number of ways you can get to
it. There was another model that was proposed.
Mr. BOUCHER. Would you give me an example?
Mr. CARSON. I will give you one example, and I am certainly not
endorsing it, but in that CARP that many people are upset with,
there was another model that was, in fact, to say lets argue by

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00063

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

60
analogy based upon whats happening with respect to musical compositions (ASCAP, BMI, and so on). Had the CARP elected to go
in that direction, it would have been perfectly permissible to do so.
That would have been another way of determining fair market
value.
Mr. BERMAN. You mean percent of revenue?
Mr. CARSON. It might have been.
Mr. BOUCHER. Your recollection of this may be better than mine
because I have to focus on lots of other things. You have the luxury
of being able to focus on this. But my recollection of that CARP is
that the arbitrators felt that their hands were tied because they
were restricted by the statute, and they had to look at these transactions exclusively and couldnt go beyond the bounds of those to
look at anything else. In fact, they protested that, did they not?
Mr. CARSON. I dont recall them protesting, but if that was their
view, I think they had a rather inflexible reading of the law.
Mr. BOUCHER. Well, Im happy to hear you say that. Maybe if
were confronted with this situation again, we can show them the
transcript of your answer here, and they will be a little more flexible in the way they apply things.
I am going to ask one more question, with the Chairmans indulgence.
Mr. SMITH. Without objection, the gentleman is recognized for an
additional minute.
Mr. BOUCHER. I thank the Chairman.
I understand the concern of the recording industry that the more
interactive a service becomes, the more likely that service is to displace sales; that it was on the theory of that reality that the compulsory license was denied for interactive services. But we have
had a very difficult time in establishing what is interactive and
what is not, and it now appears that even the slightest amount of
listener influence is sufficient to stimulate litigation and a potential denial of the compulsory license.
For example, even these rating services that are nothing more
than a public opinion poll, where the station is saying to the listeners in a Webcast, rate on a scale of 1 to 5 who your favorite performers are, notor something such as that, not so that they can
customize something for that particular listener, but so they can
get a response and feedback from the audience in order to influence
the general programming that that particular Webcaster offers,
and even that tiny amount of listener influence, nothing more than
a public opinion poll, has generated litigation against some of the
major Webcasters. Even Yahoo has been involved in this litigation.
And I think that experience cries out for more certainty. We need
to know where the line is.
Would you support this Committee giving you rulemaking authority so that you could draw the line and determine to the certainty of all parties concerned exactly what is the proper amount
of listener influence in terms of deciding whether or not the compulsory license is available?
Mr. CARSON. Well, Im not sure whether we dont already have
that authority. We were invited by Mr. Potter to assert that authority.
Mr. BOUCHER. Do you believe you have it?

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00064

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

61

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00065

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

Carson.eps

Mr. CARSON. I think we may well have it, but I think its a much
more difficult task than one might imagine.
Mr. BOUCHER. I dont discount the difficulty perhaps of achieving
the task, but my question is a different one, and that is do you
have the authority to undertake the rulemaking?
Mr. CARSON. I think we probably do.
Mr. BOUCHER. Have you discussed this with Mrs. Peters?
Mr. CARSON. Not since the year 2000. I dont have an active
recollection, but that was the last time it was on anyones agenda.
Mr. BOUCHER. Would you respond to us in writing with a simple
answer as to whether or not it is the position of the office that you
have rulemaking authority?
[The response from Mr. Carson follows:]

62
Mr. SMITH. The gentlemans 9 minutes have expired, and the
gentlewoman from California is recognized.
Ms. LOFGREN. I dont mind that 4 of my 5 minutes went to Mr.
Boucher because he was asking questions that I had in mind as
well. Just for clarification, as I was listening to the discussion that
I found quite fascinating on ephemeral copies, it occurred to me
that if instead of Members of Congress we had 18-year-olds who
know how to use computers listening to the concept that you would
charge a special fee for cashing copies so that you could adequately
stream, that that would be an additional fee is just astonishing. Is
that what is really being proposed here?
Mr. POTTER. Actually that is what exists in the law, and I think
what Mr. Berman was asking is can we capture the value that
might or might not exist in those ephemeral copies in the performance royalty. And my response was it is much easier to quantify
the number of performances and the value of the performances
than it is to have any clue as to the number of ephemeral copies
that are flying around a network or to assert a value on any one
of those or all of those, since all of the value is upstreamed into
the performance.
Ms. LOFGREN. I thinkI know we have been notified we are
going to have a vote in a few minutes, but it seems to me that if
we step back from arguing about technology and look instead to
analogizing the experience to the analog world, that this would be
a lot simpler for us to propose.
For example, on interactive, I do think that we need to have
some certainty. And I wouldif the office does not feel it has the
ability to issue regulations, I look forward to hearing that, because
I think we need to have some certainty so that the market can actually, you know, exist lawfully and there is not all this litigation.
People need to know what the rules are. Having said that, if my
kid can call into an on-air radio station and request a song that
will someday be played, and that is not interactive in the real radio
world, why would it be interactive on a Webcast.
Mr. MARKS. Could I address that point? I am not aware of any
copyright owner or label or artist that has taken the position in a
litigation that the mere calling in, so to speak, over the Internet,
providing views on programming that is not especially created for
the recipient, which is the test, is interactive. So I dont think the
uncertainty that is being discussed now exists. Indeed, the definition is very straightforward, the definition of interactive. It is
whether the programming, based on input from the user, is being
specially created for that user.
Mr. POTTER. I would be happy to respond. I notice Mr. Marks
tempered his response with the phrase in litigation, and nobody
has asserted that in litigation. Under the threats of litigationfirst
of all, the threats. Obviously, the litigation is done by the individual companies. But the discussions about what is legal or not
often do not happen in litigation because most of our companies do
not have the sizeable litigation budgets that the record industry
has, and therefore, theyhaving seen the first huge litigation
when every company, MTV settled, Musicmatch settled, Xact Radio
went out of businesshaving seen these companies driven out of
business or driven to their knees by an ambiguous statute, they

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00066

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

63
have decided not to innovate and not experiment and not to invest
in those sorts of technologies.
Ms. LOFGREN. That is the impression that I had had. And it
seems to me that some certainty here, wherever we draw the line,
would be very helpful, and we ought toI mean, if you can go on
the radio, and they do, and say, what is the top tune, and Billboard
says, whats the top tune, I mean, basically the surveys are the
same function. So I am just urging, I guess, that we look to the
consumer experience and measure that against the analog world
rather than, as we have done for the past several years, chase our
tails trying to control technology, which we will fail at because the
technology is going to continue to change. Well never be able to
contain it. And I think that the experience of the recording industry is the poster child for how that is a losing strategy.
We need to get some certainty, and we need to make sure that
we do not deter different platforms from delivering content. And I
think that the system we have now is certainly broken, and hopefully, with your efforts, we can fix it.
I just want to make one other comment on the broadcast flag
issue raised by Mr. Boucher. Too often, I think, we are discussing
these issues here between content owners, creative artists, distributors of material. But Mr. Boucher is correct, there is a whole other
world thats involved in this. And technology developers. And you
could have any standard in the technology world, and well live
within it.
I am very concerned and alert to the possibility that we might
enable monopolistic approaches to the consumer electronic world or
software world that would be adverse to all of us, including creative artists and content holders. So if there is any interest in
doing a broadcast flag, I do agree that we have to have substantial
review of this to prevent that kind of adverse outcome that would
really end up squeezing every other act, including the RIAA and
everyone else in this whole area. And with that, thank you, Mr.
Chairman.
Mr. SMITH. Let me thank all the panelists. This was very, very
interesting. You all know that we are not likely to move this legislation this year, but we do hope to get an early start next year, and
we will consider everything you mentioned in your testimony and
look forward to hearing from you again.
Thank you for being here, and we stand adjourned.
[Whereupon, at 11:20 a.m., the Subcommittee was adjourned.]

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00067

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00068

Fmt 6633

Sfmt 6601

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

APPENDIX
MATERIAL SUBMITTED

FOR THE

HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
Mr. Chairman thank you for holding this oversight hearing on balancing the interests of sound recording copyright owners and the broadcasters. Im looking forward to hearing from the witnesses about the impact of internet streaming on various business models. While I am confident in the outcome of the Bonneville case,
I am not convinced that pure webcasting and the simultaneous webcasting of an
over the air radio broadcast are identical activities that should be subject to the
same licensing conditions. It may be that the rules should be technology neutral,
or it may serve a greater public need to carve out exceptions to the rules to account
for the differences between the technologies.
However, before we get to the points of controversy, it is important to note that
at least all the witnesses here today, acknowledge that the prevention of piracy of
sound recordings is an important goal.
With the advent of new technologies we are once again faced with the problem
of ensuring that performing artists, record companies and others whose livelihood
depends upon effective copyright protection for sound recordings, will be protected.
The Copyright Office has suggested granting copyright owners of sound recordings
a full performance right to harmonize the rights of owners of sound recordings with
those of other copyright owners once and for all. There is great appeal to that proposal in that we need not focus only on the immediate problem and seek the particular solution, we can stop having the tail wagging the dog of whatever technology
is next. Just a short time ago we proposed the sound recording complement to prevent copying of music, which would replace sales of sound recordings. Now, there
is already technology which allows users to copy all of the recordings transmitted
on a webcast channel, disaggregate them, save them to substitute for purchases of
legitimate downloads or CDs and redistribute them with peer to peer software. In
the near future, we will probably be back here to discuss in depth the effect of digital audio broadcasting or HD radio on the sound recording performance right as
well.
I doubt the witnesses before us today will express unified support of a full performance right for sound recordings. Instead, broadcasters and webcasters take
issue with some of the provisions of the Section 114 license. For its part, the record
industry illuminates problems emanating from the ease of copying sound recordings
from a broadcast or webcast.
Clearly, if we are to have a Section 114 webcasting license, it should be a workable license. Therefore, we should ensure that its terms do not unduly burden licensees, nor unduly impair the legitimate interests of copyright holders. On the latter issue, I am concerned that several provisions of Section 114 designed to deter
piracy and preserve the recorded media market are not working. Specifically, I refer
to the sound recording performance complement, and the requirement that transmitting entities accommodate copy protection technologies used by sound recording
copyright owners. It appears these provisions have fallen short in terms of protecting the interests of sound recording copyright owners. I expect to ask our witnesses a number of questions about the continued utility of these provisions as currently structured.
There will also be testimony about the need, or lack there of, for a separate license to cover multiple ephemeral copies. Section 112(e) created a statutory license
to allow any service operating under the Section 114 statutory license to make one
or more ephemeral recordings of a sound recording to facilitate the digital transmission of these works governed by section 114. Even the Copyright Office had stat(65)

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00069

Fmt 6601

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

66
ed that Section 112(e) can best be viewed as an aberration. However, the marketplace has borne out that there is a value to multiple ephemeral copies. There seems
to be a discrepancy as to what the valuation of an ephemeral copy is. Instead of
computing a separate value for the 112 license to copy could we put before the
CARP establishing the rate for the 114 license the requirement to include in its
evaluation the value, if any, of the multiple ephemeral copies?
I am aware as described in the written testimony of NAB and DiMA, that there
is some distrust among the broadcasters and webcasters of the CARP proceeding.
After all the claim is made that stations pay at least 5 to 6 times as much for
sounds recording royalties that for musical works. However, I am not sure that
speaks as much to the CARP as it does to the inequity of royalties paid to musical
works copyright owners. That being said I agree that to some extent the CARP
needs to be reformed and therefore support HR 1417.
Technology provides many new opportunities to reach new audiences. We must
be wary though of trampling on certain rights in order to get there.
Thank you and I yield back the balance of my time.

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, AND RANKING MEMBER, COMMITTEE
ON THE JUDICIARY
I believe that our laws are where they should be on digital music rights. It is the
songwriters, the recording artists, and the record labels that actually create the content that the other industries profit from; it is only fair that they get paid for it.
In the mid-1990s, I was a lead proponent of the idea that there should be a digital performance right. The lay of the land, as we all know, was that artists and
labels received no royalties for radio play of their music, although the songwriters
did. When a new technology, the Internet, came along, I believed it was the right
thing to do to make sure that all of the creators of music were compensated for their
creativity and efforts.
After all, it is copyrighted works that are the driving force of our economy, providing what may be the only positive balance of trade for our nation. It would be
unwise to bite the hand that feeds us by saying they should not be compensated
for what they do.
I do not think that the fact that artists do not get paid for over-the-air radio
broadcasts is an effective argument for saying Internet transmissions should be royalty free. An oversight in one technology does not mean there should be an oversight
in another.
I also believe that, as we develop newer technologies, we should ensure that content is adequately protected. The development of technology that permits copyright
law to be evaded is not something to cheer; in such instances, the copyright laws
must be updated.

PREPARED STATEMENT OF THE AMERICAN FEDERATION OF TELEVISION AND RADIO

ARTIST (AFTRA), THE AMERICAN FEDERATION OF MUSICIANS OF THE UNITED
STATES AND CANADA (AFM), THE RECORDING ARTISTS COALITION (RAC), AND THE
FUTURE OF MUSIC COALITION (FMC)
On behalf of the thousands of recording artistsboth musicians and vocalists, and
both royalty artists and studio artistswho belong to our organizations, the American Federation of Musicians of the United States and Canada (AFM), the American Federation of Television and Radio Artists (AFTRA), the Recording Artists
Coalition (RAC) and The Future of Music Coalition (FMC) would like to thank
the Chairman, the Ranking Minority Member, and the Members of the Subcommittee for holding a hearing on the transmission of sound recordings and in particular for their continued concern, oversight and leadership on the many issues of
crucial importance to recording artists and the industries that depend upon their
artistic product.
INTRODUCTION

The theme of the hearing is balance, and representatives of the industries that
are built upon selling, broadcasting and transmitting our recordings appeared on
the panel before this Subcommittee and argued that elements of the current system
are sufficiently out of balance as to cause serious harm to their industries. Ironically, the panel itself was off-balance in a critical way: it did not include any rep-

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00070

Fmt 6601

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

67
resentatives of the musicians and vocalists whose recorded performances are at the
heart of the recording, broadcasting and webcasting industries. To be sure, as creators we desire the success of the recording companies who invest in our art, as well
as of the old and new industries that help bring our art to the public. But it must
always be remembered that it is our music that the public wants to hear and therefore our music from which these industries profit. Simply put, without our creative
work, there would be no sound recordings and no musical product to broadcast or
transmit.
Given that fact, there really is no feasible way to achieve a balance in and among
these industries unless the needs of recording artists are met and our voices are
heard. As we discuss in more detail below, recordings do not spring by magic from
our instruments, and although innate talent is necessary, talent alone is not sufficient to bring recorded work to fruition. Recording careers require hard work and
the investment of vast amounts of time, effort and perseverance on the part of musicians and vocalists. Moreover, as we also discuss below, most recording artists
whether they are royalty artists or studio artistsdo not fit the public stereotype
of rich celebrities. Very few talented and hardworking artists can manage to survive
economically, and those that do for the most part earn only modest livings. Historically, a key part of those modest earnings hinged on the sale of recordings because
the lack of a performance right in sound recordings deprived recording artists of any
income stream from the broadcast of their work. Now, even these modest earnings
from sales are threatened by the ongoing transformation of the business from one
based on the sale of product to one based on the sale of a listen. Unless performers
can survive economically during this time of change and in whatever new world arrives, the relevant industriesand American culturewill most assuredly be out of
balance because there will be no recording artists left who can afford to dedicate
their working lives to making recorded music. Before turning to our detailed discussion of these issues, we set forth additional information about our organizations.
AFTRA, THE AFM, RAC AND FMC REPRESENT THOUSANDS OF RECORDING ARTISTS

The American Federation of Television and Radio Artists (AFTRA) is a national

labor organization representing approximately 80,000 performers and newspersons
that are employed in the news, entertainment, advertising and sound recording industries. AFTRAs membership includes more than 11,000 recording artists, including more than 4,500 singers who have a royalty contract with a record label (featured artists) and roughly 6,500 singers who are not signed to a royalty contract
(non-featured artists).
The American Federation of Musicians of the United States and Canada (AFM)
is an international labor organization composed of over 250 Locals across the United
States and Canada, with over 100,000 professional musician members. AFM members perform live music of every genre and in every size and type of venue and include over 10,000 musicians actively involved in recording music as featured artists
or studio musicians.
The Recording Artists Coalition (RAC) is a nonprofit coalition formed to represent artists with regard to legislative issues and to address other public policy debates that come before the music industry.
The Future of Music Coalition (FMC) is a nonprofit organization that identifies,
examines and translates the challenging issues at the intersection of music, law,
technology and policy for musicians and citizens.
Our groups represent a wide range of diverse royalty artists at all levels and
stages in their careers from Blink 182, the Temptations, Elton John, Billy Joel, Jay
Z, David Sanborn, Mandy Patinkin, Aimee Mann, Quincy Jones, Lowen & Navarro,
Anthony Hamilton to Ruth Brown, as well as most of the professional studio musicians and session singers.
SOUND RECORDINGS ARE UNIQUE WORKS OF ART THAT ARE CREATED BY THE
TREMENDOUSLY HARD WORK OF TALENTED PERFORMERS

Traditional broadcasters and the new digital transmission services often point out
with some asperity that they already pay one set of creators, the songwriters, for
the right to broadcast or transmit the underlying musical work embodied in the
sound recordings they play. It is absolutely essential that they do so, because songwriters, like performers, are at the creative core of the music industry and must be
able to earn a living if American culture and its varied entertainment industries are
to be healthy. But it is equally essential to understand that the act of recording the
song involves an additional and different creative process which also must be compensated if recordings are to be made.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00071

Fmt 6601

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

68
Thus, Harold Ray Bradley, the most recorded guitarist in history, frequently adds
his own conclusion to the songwriters motto. It all starts with a song, he agrees,
but it doesnt end there. Songs are beautiful and unique works of art, but they
are meant to be heard, and unless they are performed by musicians and vocalists,
they can reach no one at all. It is when a song is recorded, and the recording is
played and heard, that a song can reach out to hundreds of thousands or millions
of people.
Recording musicians and vocalists breathe life into a song, not only by making
it audible, but also by shaping its tone, style, rhythm, sound and colorinterpreting
it, and in the process, creating yet another unique work of art, the recorded musical
performance. Two recordings of the same song can be utterly different, and reach
completely different levels of success. In the 1960s, Ray Price recorded the Kris
Kristofferson song Help Me Make It Through the Night in a Frank Sinatra, twobeat style. Ray Price was a popular recording artist, but that recording was not a
hit. In 1970, Sammi Smith recorded the same song, and with it won a gold record,
a Grammy, and a #1 spot on the country charts. What was different? The song was
the same great song in both versions. But in the Sammi Smith version, she contributed her beautiful, seductive voice. And the musicians made an important creative
contribution as wellthey slowed the song down and put it into a straight 8ths
rhythm that gave Sammi Smith the space she needed to put a lot of feeling into
the lyrics.1
Recording artists work long and hard at their craft, whether they are the featured or royalty artists whose names are most associated with the recording, or
whether they are the studio musicians and vocalists whose performances form the
musical backbone of the recording. There is no one model of how the recording process works, but the bottom line of every kind of recording is the talent, skill, time,
effort and work required of the performers in the process.
For example, recording artist Jennifer Warnes 1986 recording Famous Blue Raincoat was a tremendous commercial, critical and audiophile success.2 She conceived
of the album as a tribute to songwriter Leonard Cohen, and in it, she reframed
many of his songs from folk renditions to edgy combinations of acoustic, electronic
and synthesized sounds. She invested a year of her time and worked on all the creative and practical elements necessary to bring her concept to fruition. She not only
contributed the featured vocals, but also secured the funding, chose material to be
recorded, rented the studio, found musicians, and with the collaboration of the fellow-artists she chose, arranged, recorded, mixed and mastered the album. It takes
innate talent to be a recording artist, but it takes much more as well. Royalty artistswhether they are primarily vocalists like Jennifer Warnes, primarily instrumentalists, or a combination of all the creative disciplines like singer-songwriter-instrumentalistswork hard for many years to develop all the skills and abilities that
allow them to express their creative vision in the recording process. The whole
course of their professional lives, and each recording project individually, represent
investments of time, skill, energy and plain hard work.
Although the listening public often does not learn the names of most of the studio
musicians and vocalists who perform on the recordings they love, the creative contributions of those performers are also critical to the sound and success of the recordings. The background musicians and vocalists in a recording session style the
song with intros, fills, chord changes, solos, tempo and rhythms. Their talent, insight and skills are necessary to achieve a truly great arrangement, interpretation
and performance.
A classic (and frequently analyzed) example that beautifully illustrates the work
and collaboration in the recording studio is Patsy Clines recording of the Willie Nelson song, Crazythe number one jukebox hit of all time.3 Seven studio musicians
1 Guitarist Harold Ray Bradley described and analyzed the two recordings of Help Me Make
It Through the Night in detail in his written testimony submitted to the Copyright Arbitration
Royalty Panel that set certain Section 114 compulsory license rates for digital performances of
sound recordings. Direct Case of the American Federation of Musicians of the United States and
Canada, In the Matter of: Digital Performance Right in Sound Recordings and Ephemeral Recordings, Docket No. 20009 CARP DTRA 1&2, April 2001. Bradley performed on the Ray Price
recording.
2 Jennifer Warnes described the creative process involved in Famous Blue Raincoat in her
written testimony written testimony submitted to the Copyright Arbitration Royalty Panel that
set certain Section 114 compulsory license rates for digital performances of sound recordings.
Direct Case of the American Federation of Television and Radio Artists, In the Matter of: Digital
Performance Right in Sound Recordings and Ephemeral Recordings, Docket No. 20009 CARP
DTRA 1&2, April 2001.
3 Guitarist Harold Ray Bradley described the Crazy recording session in his written testimony submitted to the Copyright Arbitration Royalty Panel that set certain Section 114 compul-

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00072

Fmt 6601

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

69
were called to that session, and with producer Owen Bradley they created a perfect
arrangement and performance that transformed the song into a timeless hit. For example, bass players Bob Moore and Harold Ray Bradley are said to have achieved
the apex of country bass with the rhythms they created together,4 Walter Haynes
added a tremolo sound on pedal steel and Floyd Cramer added a blues element on
the piano, all of which, together with the inimitable background vocals of the legendary Jordanaires, are an integral part of the greatness of the recording. Like the
royalty artists, studio musicians and vocalists must have innate talent, but they
also must work hard to develop their skills and hone that talent in order to deliver
the performances that transform songs. It is a lifetime career, and takes an investment of all their time and abilities.
PERFORMERS DEPEND ON COMBINING MANY INCOME STREAMS

The popular image of recording artists as fabulously rich celebrities is very far
from the reality. A few creators in the music business do earn substantial livings.
Many more fail to survive at all in the industrydespite being gifted musicians or
vocalists who work hard at their craft. And, of the successful creatorsthose who
do manage to survive financiallymost either struggle financially or earn no more
than a modest living. They are ordinary, hard-working Americans. What sets them
off from the general population, other than their musical talent, is the fact that living by their talents does not provide them with a normal job or a steady paycheck.
Instead, they are participants in the unique and complicated music industry, and
earn their livingsor dontfrom complicated statutory and contractual arrangements that produce sporadic and varied income streams.
For example, royalty artists are not paid for all of the many varied creative tasks
they perform when they make a recording. Whether they are vocalists or instrumentalists, they are, for the most part, small businesspersons or entrepreneurs, with a
complex web of creative and business relationships developed to enable them to
make their recorded product. Typically, royalty artists enter into complex contracts
with recording companies in which the companies invest in the production and promotion costs and then make royalty payments to the artist based on sales. Later,
those monies are recouped from the artists royalties. In most cases, the additional
costs of marketing and publicity, videos, tour support and other promotions are recouped as well, all from the artists small share of the pie. The bottom line is that
a royalty artist can be quite successful in terms of sales and artistic value without
making a substantial profit on recording sales. Sales are crucial to recognition, survival and successbut they almost never produce sufficient income on which to live.
Royalty artists must also developand they depend onother income streams such
as live concert fees, T-shirt sales and other merchandising, songwriting income (for
those who are also songwriters) and other business opportunities to help them make
a living.
The income stream that all recording artists historically have lacked is, of course,
any income based on the performance of their recorded work on the radioeven
though radio airplay of recordings built broadcasting into an enormously profitable
industry. Under current law, performers receive no payments as a result of digital
or analog radio airplay because there is no full performance right in sound recordings in the U.S. However, since 1995 there has been a limited digital performance
right from which royalty artists benefit. Royalty artists share in the license fees for
interactive digital performances (like on-demand streams on the Rhapsody or
Napster 2.0 subscription services) in accordance with their royalty contracts (or
through direct licenses if they own their copyright in the sound recording). As to
the compulsory license payments made for non-interactive streams transmitted by
webcasters, satellite radio and cable subscription services, royalty artists are paid
45% of the license proceeds in accordance with a sharing scheme mandated by Congress, and because this money is paid to artists directly, it is not recoupable. The
income streams produced for recording artists by the digital performance right are
very small now, but artists have a vital stake in the growth of this new market for
their work and its potential to expand as an important income stream, one of the
many streams necessary for them to earn a living.
Like royalty artists, studio musicians and vocalists are far from the typical employee of a standard business. They dont have nine-to-five jobs but work in recording sessions for a host of different employers whenever they are called. And, like
sory license rates for digital performances of sound recordings. Direct Case of the American Federation of Musicians of the United States and Canada, In the Matter of: Digital Performance
Right in Sound Recordings and Ephemeral Recordings, Docket No. 20009 CARP DTRA 1&2,
April 2001.].
4 30 Essential Bass Albums You Must Own, Bass Player, June 1997.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00073

Fmt 6601

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

70
royalty artists, they historically are dependent upon the sales of recordings as a
critically important part of their income.
Musicians working under the AFMs Sound Recording Labor Agreementwhich
is negotiated with all five major recording companies and later agreed to by hundreds of small and independent companiesearn scale wages, pension contributions,
health and welfare payments, and re-use fees if the recording later is used in another medium like a movie. In addition, musicians earn deferred income based on
sales. Signatory record companies are required to make contributions to the Sound
Recording Special Payments Fund. These contributions are made according to negotiated formulas based on sales. The Fund is then distributed annually to recording
musicians in accordance with a formula based on their scale earnings in the industry over a five year period. It is important to note that royalty musicians also earn
these benefits when they record for signatory companies.
Similarly, studio vocalists working under the AFTRA National Code of Fair Practice for Sound Recordingswhich is negotiated with all five major recording companies and later agreed to by hundreds of small and independent companiesalso
earn scale wages, contributions to the AFTRA Health and Retirement Funds, and
re-use fees if the recording later is used in another medium. Health and welfare
contributions are based on earnings (not just scale wages, but all earnings including
royalty earnings for royalty artists) and thus form an important source of health
care coverage for vocalists. Under the Sound Recordings Code, vocalists also benefit
from sales because they receive contingent scale (i.e., additional) payments when
the records on which they perform reach certain sales plateaus. As noted, royalty
vocalists also earn these benefits when they record for signatory companies.
Finally, studio musicians and vocalists also benefit from the digital performance
right in sound recordings created by Congress in 1995. Studio musicians and vocalists are entitled to receive a portion of the major recording companies interactive
digital license income pursuant to a 1994 agreement between those companies, the
AFM and AFTRA. In addition, they are entitled by law to 5% of the compulsory license fees (212% for musicians and 212% for vocalists) paid by the non-interactive
digital streaming services such as webcasters, satellite radio and cable subscription
services pursuant to the Section 114 compulsory license for non-interactive digital
transmissions. As yet, these income streams are very small, but studio musicians
and vocalists have a vital stake in their growth.
The AFM and AFTRA are proud of the standards they have set in the recording
industry, which allow many musicians and vocalists to earn decent livings in an occupation that is characterized by uncertainty and intermittent employment. But
overall, the earnings of studio musicians and vocalists, like those of royalty artists,
are modest, and dependent on the ability to add together income from many sources.
INDUSTRY CHANGES AND NEW TECHNOLOGIES POSE SERIOUS THREATS
AS WELL AS NEW OPPORTUNITIES TO ARTISTS

As we move into the twenty-first century, new technologies, services and business
realities are affectingand in some instances, threateningartists ability to earn
a living.
While the reasons for the reduction in sales of recorded music are hotly contested,
there is no question that in the United States and internationally sales have
dropped precipitously. Fewer sales translates into real financial hardships for recording artistsless money to invest in new recordings, even lower royalty payments, lost Special Payment Fund contributions which decrease musicians income,
lessened potential for contingent scale payments to vocalists, and overall the contraction of the industry in which we work and strive to earn a living.
Meanwhile, new technologies and new services offer exciting new ways to deliver
music. Digital downloads, digital subscription services, internet radio, digital audio
broadcasts are all developing and are, or soon will be, competing with each other
and hopefully expanding the marketplace for music. Obviously, much of this new
development focuses not on selling recordings (in any format) but rather on selling
the opportunity to listen to the broadcast or transmission of a chosen recording or
genre of recordings.
How ever these new services and markets will develop, one abiding truth will remain: an essential part of the balance that must be struck by our copyright law is
that the new models must provide adequate compensation to recording artists, both
royalty artists and studio artists. If the recording, broadcasting and transmitting industries are allowed to seek only to balance their business interests vis-a-vis each
other, without providing for the livelihoods of artists, there ultimately will not be
a varied, lively or vibrant creative product on which to base their businesses.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00074

Fmt 6601

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

71
THE NEED FOR PERFORMANCE RIGHT

In this new era, we would like emphatically to reiterate the Copyright Offices call
for a comprehensive performance right in sound recordings. The denial of a full public performance right is inconsistent with the philosophy of copyright law to secure
the benefits of creativity to the public by the encouragement of the individual effort
through private gain. Without a full performance right, especially as we move into
an era of digital technologies and new business models, recording artists must rely
disproportionately on a dwindling sales income, which will not provide the necessary
incentive for recording artists to create in the twenty-first century.
The historical denial of a performance right to recording companies and recording
artists has always been inconsistent with the structure of the bundle of rights that
make up copyright in our country. Copyright owners of every other copyrighted
work that is capable of being performed also enjoy a performance right in that work
and, thus, have the right to profit from their creative effort by licensing performances and earning performances royalties. The Copyright Office has explained the
historical anomalies that resulted in denying sound recording copyright owners and
performers the same ability that other creators have to benefit financially from their
work when others perform it publicly. We agree wholeheartedly that this situation
should not be allowed to continue.
The U.S. is one of the few industrial countriesif not the only onethat does not
have a broad performance right for sound recordings. At least 75 nations, including
most or all European Union member states, have a performance right. Entertainment is Americas number one export and more U.S. recordings are performed overseas than foreign recordings are performed here. As a result, in addition to not receiving compensation when their works are broadcast here, U.S. performers and
record labels lose hundreds of millions of dollars each year that are collected when
U.S. recordings are broadcast overseas because we do not have this right in the U.S.
This situation is all the more untenable in light of the fact that radio stations
have built vibrant and successful businessesand earned huge profitsbased upon
the broadcast of our members work. It is our music that attracts listeners to radio
stations, and enables them to sell advertising on the basis of market share. Broadcasters receive their biggest resourceour recorded performancesat no cost, and
then do not share any revenue with the creators whose sound recordings are actually responsible for the revenue.
The broadcasters mantrathat radio broadcasts promote sales, and that therefore they should have no obligation to pay for the performance, is neither universally true nor particularly relevant. Promotional value of a performance does obviate the requirement to pay creators of other creative works; for example, a novelist
can expect to see increased book sales if the novel is made into a movie, but no one
would suggest that the novelist therefore need not be paid for the visual interpretation. In any event, the promotional value of radio airplay cannot be universally assumed. Many recordings race up the airplay chart but never make it out of the middle of the sales chart. In addition, oldie sound recordings provide the radio stations
with an entire format and stream of revenue but do not result in commensurate
sales for the performer or record label.
Moreover, the rationale of the twentieth century no longer applies in the twentyfirst century. Even if the promotional argument provided a justification for denying
a performance right in sound recordings in the twentieth century, business paradigms are now changing. As the music industry changes, revenue streams also are
changingsome are new, some are growing and some are now less important. The
public performance revenue income stream is taking on increased importance in the
new business models. As we noted above, the time may soon arrive when the presumedand most importantconsumption of a sound recording is no longer a sale
but is a listen. In the future, especially as we become wireless, many music fans
may never buy product, but rather will rely on broadcast/transmission services to
hear all the music they desire. A great variety of such services, many of them without any component of a traditional sales distribution, already are becoming more
important. There are many radio streaming services such as XM, Sirius and Rhapsody where the consumer purchases listens instead of product or downloads.
The music industry must change, and we need to encourage new creative legitimate models that serve customers and music fans in new ways that the customers
want. But as much as we support the development of new technologies and new
modelsand we do support them because we believe that they can be good for our
artwe urge this Subcommittee and all of the relevant industries to take seriously
the fact that these new developments cannot thrive if they result in imbalances that
harm our ability to survive as creators. The digital music services that are subject
to the Digital Performance Right in Sound Recordings Act must pay performance

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00075

Fmt 6601

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

72
royalties in order to use our music; but, unfortunately, FCC licensed radio stations
are not required to do so, even when they are competing for the same listeners. That
certainly is not a level playing field. XM has to pay for using sound recordings, as
it should; why should Clear Channel have an unfair advantage when they are both
competing for the same listeners?
Copyright law must regain its focus so that it continues to provide incentives for
investment and creative works in the digital landscape. In the past, Congress has
worked to ensure that the Copyright Act strikes the appropriate balance to provide
incentive for the creation of sound recordings and exploitation of those works in a
digital world. The balancing act must be an ongoing one. As technology propels
broadcasting and performances, rather than just sales, into the ultimate consumptive use, it is more important than ever that sound recordings be given a performance right, and that the real needs of artists remain a critical consideration in the
policy debates.
DIGITAL AUDIO BROADCAST

The emergence of digital audio broadcasting (DAB) reinforces the immediate

need for a performance right.
Digital audio broadcast has developed, and likely will continue to develop, differently from what was envisioned in 1995. It is not simply the same as analog
radio transmitted digitally. Rather, DAB is being advertised as radio you because
it will be able to provide individualized services and will have the capacity to broadcastor, more accurately, to narrowcastprogramming that is tailored for each
recipient. DAB receivers store data, while analog radios do not; DAB provides audio
on-demand, while analog radio does not; DAB can provide customized programming, while analog radio does not; DAB allows the listener to pause and then go
back to where they left off, while analog radio does not; DAB includes a program
guide, telling the listener whats coming, while analog radio does not; DAB is accompanied by meta-data indicating artists and title, while analog radio generally is not;
DAB isnt limited to audio, while analog radio is; DAB is a fat data pipe, while
analog radio is not.
Given these characteristics, DAB will provide the type of service that Congress
intended to be covered by a performance right. When enacting the DPRA in 1995,
Congress said
The limited right created by this legislation reflects changed circumstances:
the commercial exploitation of new technologies in ways that may change
the way prerecorded music is distributed to the consuming public. It is the
Committees intent to provide copyright holders of sound recordings with
the ability to control the distribution of their product by digital transmissions, without hampering the arrival of new technologies, and without
imposing new and unreasonable burdens on radio and television broadcasters, which often promote, and appear to pose no threat to, the distribution of sound recordings.5
If DAB develops into a service which will be so personalized and so narrowand
which will include the ability to rewind, skip, or scan the channels in order to receive only the recordings a listener wants, and then to record, store and catalog
themit will threaten both the distribution of sound recordings via sales and, as
well, the new business models such as digital subscription services on the internet,
subscription digital satellite radio, and other services that are subject to the digital
performance right and pay royalties for the use of recorded music. With DAB, members of the public may be able to receive what they want, when they want it. They
will no longer have to purchase product or even listens. But if that is the case,
how will the services that pay us survive, and how will we, the artists, earn a living? There will be no financial incentives left for the creators of and investors in
sound recordings.
CONCLUSION

The balance that Congress struck between record companies and performing artists, on the one hand, and digital technologies and broadcasters, on the other hand,
is now off kilter. We firmly believe that technological advances and fairness require
Congress to revisit the Copyright Act and enact a broad performance right for sound
recordings, in a form that ensures a fair benefit to artists.
Congress must be mindful that this is not simply one business versus another.
At the heart of these important issues are the individuals whose talents create the
5 S.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Rep. No. 104128, at 15 (1995), reprinted in 1995 U.S.C.C.A.N. 356 (DPRA Report).

Jkt 089266

PO 00000

Frm 00076

Fmt 6601

Sfmt 6621

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917

73
sound recordings. Performance royalties will provide critically important income to
famous and ordinary musicians and vocalists. Without recording artists, there would
be no music on any station. Please dont make sound recording creators wait any
longer for fair compensation for the performance of their music.

VerDate 0ct 09 2002

10:17 Aug 26, 2004

Jkt 089266

PO 00000

Frm 00077

Fmt 6601

Sfmt 6011

G:\WORK\COURTS\071504\94917.000

HJUD1

PsN: 94917